UK M&A laws: tweak government has no power to rally animal spirits

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Flip flops look good on a beach, but bad in politics. So it is easy to see why the UK’s plan to pare back recently introduced powers to screen foreign takeovers is inspiring snarky comments. This seems like the umpteenth attempt to revive London’s moribund stock market, this time by making M&A easier.

The Takeover Panel, the UK’s statutory mergers and acquisitions umpire, has slipped into a loss. It is financed by fees on deals and filings. City types blame red tape for sapping animal spirits. The government obligingly ditched beefed-up governance legislation last week.

Deal doers should also welcome changes to the National Security and Investment Act. This was too broad when it came into force in 2022. Mooted changes appear sensible enough, even amid rising geopolitical tensions.

The NSI is similar in inspiration to US Cfius national security legislation and some EU laws. It mandates any buyer who acquires significant control — say 25 per cent — of a company operating in any of 17 strategic sectors to notify the authorities. In addition, the government can review virtually any transaction it feels concerned about, even if it falls outside designated sectors. 

Oddly, the NSI lacks a minimum size threshold. Even the acquisition of a company with no revenue falls under its remit. Buyers do not need to be foreign to attract scrutiny. Even internal reorganisations are caught in the net. 

As a result, in the year to March 2023, the UK had 866 notifications under the NSI. That is almost double annual notifications in the US, points out Veronica Roberts, a partner at law firm Herbert Smith Freehills.

Less than 2 per cent of deals that were notified required conditions or triggered prohibition, according to analysis by Ian Giles, a partner at Norton Rose Fulbright. In contrast, almost 15 per cent of deals reviewed across the EU were either mitigated, prohibited or withdrawn.

That suggests that the UK net catches too large a flock of butterflies. Careful rewording should hone the NSI’s scope, reducing the legal costs of companies and investors.

It would, however, be foolish to imagine that nervous tinkering will have any impact on M&A and stock market valuations. London has been enervated by Brexit, witch hunts against business, and economic uncertainty. A government with little hope of reviving itself has no hope of reviving the City of London.

The Lex team is interested in hearing more from readers. Please tell us what you think of the UK government record on business in the comments section below.