Navigating the UK’s NSI Act regime: What should M&A parties expect in 2025?

As the UK’s enhanced national security regime under the National Security and Investment Act 2021 (NSI Act) enters its fourth year, what are the key things to know about how the regime is being applied? We set out developments and trends M&A parties should keep in mind when planning deals in 2025. 

Expect more of the same

Following the UK General Election in July 2024, will there be a material change in how the NSI Act is applied under the new Labour government? “National security” is deliberately not defined, so the regime can be applied flexibly as/when risks evolve, but this potentially means that the regime might be used to address a broader range of issues 

However, the message from the Investment Security Unit (ISU), which enforces the regime, is that there has been no change since the General Election, and business should essentially expect more of the same. Overall, this is helpful in terms of certainty, especially given continuing transparency concerns regarding the regime. 

It is also worth noting that the government may have other levers to tackle broader concerns – such as so-called “contractual undertakings” – without “stretching” the NSI Act, while conditions to protect national security may have wider ancillary benefits (several conditional clearances require that critical capabilities stay in the UK – arguably also protecting related UK jobs).

Yo-yoing final orders

The wide scope of the NSI Act regime is a potential concern for investors – more than 2,000 transactions have been notified so far. Better news is that most – around 96 percent – are cleared unconditionally at the first review stage. 

Transactions called-in for an in-depth full assessment (second stage review) can be cleared unconditionally or receive a final order imposing remedies – either clearance with conditions or prohibition. Thirty-two final orders were imposed during the first three years – 14 in 2022 (five prohibitions; nine conditional clearances), three in 2023 (all conditional clearances) and 15 in 2024 (one prohibition; 14 conditional clearances). 

It is not clear why the number of final orders has fluctuated, and ultimately the number in any year will depend on the nature of the transactions reviewed. Possibly, the 14 final orders in 2022 (including five prohibitions) discouraged certain transactions in 2023, leading to fewer final orders in 2023, whereas the three in 2023 (including no prohibitions) may have had the opposite effect.

Possible reforms and further guidance

In May 2024, the then Conservative government published a new version of the Secretary of State’s statement on use of the call-in power – the only substantive guidance for the NSI Act. This clarified and expanded on certain aspects, but the overall approach remains the same – an assessment of acquirer risk, target risk and control risk.

The previous government was also considering changes to clarify and refine some of the often difficult to apply mandatory notification sectors, as well as possible exemptions for intra-group arrangements.

We hope 2025 will see these revisions implemented. The new government at least recognises aspects of the sector definitions and related guidance could be improved, based on its statutory report published in December 2024 on the Notifiable Acquisition Regulations (which define the sectors).

The large number of unconditional clearances arguably suggests significant scope to narrow the regime such that fewer transactions are caught – which would be investor friendly – but that seems unlikely. The recent report on the Notifiable Acquisition Regulations indicates the government believes the regime is generally proportionate and parties whose transactions are cleared at the first review stage face a relatively small burden.

Allow more time

While NSI Act reviews are less burdensome than competition-based merger control reviews, first stage reviews are taking longer than had been the case. The ISU now takes over a week on average to confirm a notification is complete before commencing its review, and even longer to reject a notification (two or three weeks). First-stage decisions are also now routinely close to the 30-working day deadline.

This may be because notifications have increased – 906 between 1 April 2023 and 31 March 2024, compared to 865 in the prior 12 months, mainly driven by more mandatory notifications (753 compared to 671). Voluntary notifications declined from 179 to 120 – possibly reflecting some parties taking a less cautious approach as the regime beds in.

Judicial review challenges

Two prohibitions under the NSI Act have been the subject of judicial review challenges.

These have largely proceeded in secrecy given the sensitivities, although the first substantive judgment – R (on the application of L1T FM Holdings UK Ltd) v Chancellor of the Duchy of Lancaster in the Cabinet Office [2024] EWHC 2963 (Admin) – was published in November 2024.

This judgment provides useful insights into how decisions are made under the NSI Act and related processes, but the headline point is that the challenge was unsuccessful. The judicial review standard always presents a high bar.

The UK’s other public interest and special merger regimes

M&A parties in relevant sectors should be aware of changes concerning certain of the UK’s public interest or sector specific merger control regimes under the Enterprise Act 2002 and Digital Markets, Competition and Consumers Act 2024.

In 2024, a new prohibition on foreign state powers acquiring newspaper enterprises was introduced. There are further proposals to expand the definition of “newspapers” for that prohibition, as part of broader plans to update the UK’s public interest regime for media mergers given changes in the types of entities that deliver news.

Finally, “SMS firms” – large tech firms designated with “Strategic Market Status” under the UK’s new digital regulatory regime in force from January 1, 2025 – will be subject to new mandatory merger reporting regarding qualifying transactions involving their groups.