Notification volumes are up and acceptance is taking longer
The Investment Security Unit (ISU) received 1,324 notifications during the reporting period, up 16% on the previous year and 46% on 2023/24.
The foreword to the report states that this uptick “led to a small increase in the time taken to accept notifications” as complete and start the initial 30-working day review clock. The median time for this is now 11 working days for mandatory filings and 13 working days for voluntary filings, up from seven and eight last year.
While the government also says that it is taking steps to reduce the delay, it is notable that, the day after releasing the report, it updated guidance on the NSIA process to remove the long-standing five-working day target for accepting notifications.
Overall intervention rates remain low
95.6% of notified transactions were cleared in the initial 30-working day review period, without being “called in” for an in-depth review. This is similar to the 95.5% figure for the previous year.
Only six notified transactions (less than 0.5%) were subject to remedies (a “final order”), though three non-notified transactions also received a final order and four acquirers withdrew following a call in.
The total of nine final orders compares with 17 in 2024/25, five in 2023/24 and 15 in 2022/23.
Such fluctuations seem consistent with decision-making based on the highly specific facts of each case. The extent to which lower intervention levels may also be the product of the government’s current growth agenda (and its associated perception that “regulation” has been responsible for hindering macroeconomic growth in the UK) and push for UK in-bound investment remains to be seen. Any such trend should become clearer as the data unfolds over the coming year. Of course, further change may be on the horizon as a new Prime Minister takes office.
Defence continues to trigger most notifications
As with the previous year, the majority of notifications related to the defence area of the economy (58% compared with 56% last year), with the closely-related military and dual-use, and critical suppliers to government sectors completing the top three (the latter covering government contractors subject to certain security clearance requirements).
Interestingly, the relative weight of the AI sector in notifications dropped (from fourth to sixth place) despite rapid growth and dealmaking in this area and concerns that the current sector definition may be catching too many transactions (which the government proposes to address through upcoming reforms).
Timeline for detailed reviews remains steady
Decision-making for cases that are “called in” (i.e., subject to an in-depth review) is taking roughly the same time as last year: a median of 47 working days from call in for cases that are cleared unconditionally (compared with 40 last year), and a median of 97 working days for cases involving remedies (compared with 100 last year).
However, we note that this year’s data reinforces an apparent slow-down in resolving remedies cases over the last two years—compared with 2023/24 where the median timeline from call in was just 53 working days.
This may reflect a range of factors, not necessarily all within the ISU’s control. The report argues that no conclusions as to trends should be drawn for cases involving final orders, due to their small number.
Advanced materials in the spotlight for remedies
Of the nine final orders, five concerned acquisitions in the advanced materials sector, despite fewer than 20% of notifications relating to this area of the economy.
This included two transactions in the graphene sector. Semiconductor deals—which continue to face close ISU scrutiny—also currently fall within this category, although following planned changes to the sector definitions, semiconductors will be carved out into a standalone sector (see below).
The number of final orders involving defence was down sharply on last year, from nine to two, despite the continued prevalence of defence notifications. Data infrastructure accounted for the remaining three final orders.
Remedies do not have to frustrate deals
The government emphasises that, of the nine final orders, only one blocked the relevant transaction from proceeding. This is similar to last year, where, again, only one transaction was blocked outright (having to be unwound post-completion).
The other eight transactions were permitted to proceed under certain conditions, which varied from case to case but included maintaining capabilities in the UK, corporate governance requirements, and data handling and information security obligations.
Many of these are well-trodden measures to address recurring national security concerns. Some measures are more novel—we saw concerns in a fire safety device deal remedied by a ban on developing Internet of Things networked device technology or marketing networked Internet of Things devices in partnership with entities incorporated in jurisdictions outside a preapproved list.
Continued pragmatism in enforcement
Like previous years, despite identifying a material number of transactions where a mandatory filing may have been missed (42 this year, compared with 60 last year), the government did not refer any of these for prosecution or impose penalties. Instead, it required the parties to provide reassurance that they had taken steps to prevent any future non-compliance.
What’s next?
Looking ahead, in announcing the report’s findings, the government confirmed that it still intends to implement changes to the definitions of the sectors that trigger mandatory filings, as previously announced in March this year. It plans to add the water sector, separate out critical minerals and semiconductors from advanced materials into new standalone sectors, and amend the definitions of various other sectors.
In welcome news, the government also restated its intention to exclude from mandatory notification certain low-risk transactions, including some internal reorganisations.
Given signs of pressure on the system from increasing notification volumes, it will be interesting to see how these changes are reflected in future years’ reports.
As capital flows into assets tied to sovereign resilience (as discussed in our recent Global M&A Insights report), potentially driving up notification volumes further, it is important that the NSIA system (as well as other equivalent screening regimes around the world) continues to operate efficiently and proportionately to avoid delay to investments that would support national security.
