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Is the National Security and Investment Act a risk to your deal?
Four years after the National Security and Investment Act 2021 (NSIA) came into force there is still a significant proportion of deals that arrive at a point too late in their timetable or worse, complete, before anyone considers whether the transaction needs to be notified under the regime.
There is a perception that the NSIA is primarily concerned with foreign states acquiring defence contractors but that is only half the story. The defence sector did account for 56% of notifications in 2024/25 but it also applies to acquisitions that you wouldn’t immediately associate with national security. It’s these businesses, that operate on the periphery of the sensitive sectors, where the link between target and national security is not always explicit or direct, that fall through the gap.
The NSIA requires mandatory notification of trigger events in 17 sensitive sectors of the economy, all of which are broader than their labels suggest. AI captures developers but also end users such as software companies using machine learning to analyse patient referral patterns for NHS trusts, and Suppliers to the Emergency Services catches providers of operational communications infrastructure, but the scope also includes businesses supplying the batteries for police radios.
The trigger events themselves extend beyond the acquisition of a majority stake in a relevant business. A 25% minority interest can trigger mandatory notification and contractual rights that allow an investor to block or influence key decisions may constitute material influence, and therefore a notifiable interest, at well below that threshold. Internal group reorganisations are not exempt and a split exchange and completion that gives a buyer material influence in the interim period could mean you need clearance earlier than you think.
Once a notification is accepted, the government has 30 working days to clear or call in the transaction. Responses arrive at the end of that period, not the beginning and the clock doesn’t start until the notification is accepted as complete so thoroughness at the point of submission is important.
If called in for assessment, a further 30 working days begins, extendable by 45 working days and, in exceptional cases, further still. Deals called in for assessment should be modelled on a timeline of four to six months from notification to clearance. The timetable consequences are real and for acquisitions with fixed financing windows, that’s not just an inconvenience, it can be disastrous.
The NSIA includes a call-in power for any transaction that may give rise to a national security risk, including those outside the mandatory sectors. This power can be exercised up to five years after completion of an unnotified transaction meaning that deal you completed in 2022 could still be called in.
FTDI Holding Limited acquired 80.2% of Future Technology Devices International in 2021, before the NSIA came into force. A call-in notice was issued in 2023. The final order requiring the acquisition be unwound was issued in 2024 and upheld by the High Court in 2025 when it rejected the acquirer's judicial review application. The five-year call-in power is not theoretical.
Where transactions fall outside mandatory notification but the target's activities could attract government interest, voluntary notification is worth considering. A cleared voluntary notification provides certainty against the five-year call-in risk and, where transactions involve a planned future exit, that certainty has real commercial value.
Voluntary notifications accounted for just over 13% of acquisitions reviewed in 2024/25 but 35% of call-in notices which tells a story about the risk profile of transactions where parties choose not to notify.
Completing a notifiable transaction without approval renders it void unless a retrospective validation application succeeds and fines of up to £10 million or 5% of worldwide turnover and criminal sanctions for individuals can follow. However, despite 60 offences being identified in 2024/25 the government is yet to prosecute or fine anyone, instead seeking reassurance on future compliance but it’s likely this approach reflects an immature regime finding its enforcement feet, rather than a permanent policy.
The NSIA is designed to facilitate investment, not frustrate it and transactions in sensitive sectors successfully complete every week, on time, with clearance obtained.
Just 4% of notifications were rejected in 2024/25, and the government has confirmed its intention to narrow mandatory notification in certain sectors, including AI, with the goal of limiting the deal ‘bycatch’ that currently represents a significant proportion of notified acquisitions.
Until those changes land, any business supplying software, equipment or services into the 17 sensitive sectors, whether directly or indirectly, warrants close analysis.
The NSIA question should be on the checklist from day one, not something that surfaces during due diligence when the timetable is set. The consequences of asking too late are costly in terms of both time and money so the key message remains ask the NSIA question early enough to do something about the answer.
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