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Security bill format for Higher Education

and off we go so thank you for joining us this afternoon for this webinar on the impact of national security and investment bill on life science businesses so i'm delighted to be joined today by a good team from our partners pennington's manchester cooper uh rachel bradley who you may know because she is the main face of the film for the life science companies we work with in the region then joined today by specialist colleague uh james wendt and edmund foway uh to present you on the update on the bill and what they feel the impact may be on life science in general and businesses in particular so just few housekeeping bulls before we start uh i saw everyone is on mutant camera off which is perfect if you could remain like that that's great uh we want to allow you to ask questions and so to be interactive so if you want to just drop some questions in the chat box and i'll pick up on them and ask them to james edmond or rachel if she wants to intervene on that and as i mentioned at the beginning and you may have noticed the webinar is recorded so that's to allow you to get back to any point afterwards or to share with colleagues if you want to so that's it for me i'm going to start hiding and i'm going to leave the floor and slides to jameson edmond thanks thanks elaine um so just by way of introduction um to edmund and myself i'm a corporate lawyer um working with life sciences and technology companies um on sort of funding and m a transactions which are sort of like to be affected by this regime so that's my my angle on it um edmund is on the the competition law and merger control side and as we'll see sort of merger control is probably the closest analogy in uk terms to this new regime um although with quite a few differences [Music] so just give an outline of um what we are going to cover um the new regime gives power to the secretary of state to intervene on national security grounds in a range of transactions primarily in the takeovers and investment transactions um it can intervene in the sense of prohibiting or imposing conditions on transactions it does apply to um in theory to any sector any business in any sector um but some sectors have more onerous mandatory notification regime um when notice must be given in advance and the transaction cleared before it can be completed um it applies to uk entities and assets um and some overseas ones with um connections with the uk it's currently in the committee stage at the house of lords so it's expected to um clear the parliamentary stages at some point in the the second quarter of this year um and then well expected to come into force this year certainly and they haven't exactly when but um it will certainly pass by by qt um there is a limited retrospective effect in that some transactions which have commenced since the bill was introduced can be subject to retrospect to renew um although this is probably only likely to catch the most controversial or sensitive transactions so i will hand over now to edmond to just give a bit of background on the regime in the context of previous previous legislation and merger control thanks very much james so as james said um there is an analogy or overlap in the uk between the concept of investment screening and merge control to some extent because of historical accident and part of that accident is that it was the merger control regime a competition law assessment which was the forum in which previous public interest interventions for non-economic reasons would take place and so i thought it was useful just to without taking too much time out of the session to have a quick look at the uk merger regime itself which is the background out of which the nsi concept has emerged and the uk merge control is slightly odd because it's what's called a voluntary system it doesn't mean you can take it or leave it ing to whether you feel like it but rather that unlike lots of jurisdictions um other continental jurisdictions and elsewhere there's no actual mandatory obligation to pre-clear transactions of any type whatsoever in the united kingdom and so it's as i put on the side it's perfectly legitimate practice um in in many contexts to complete a deal and aware that it could get called in after the event in certain circumstances and to think well we'll cross that bridge if if we need to but we're not going to pre clear a couple of other odd features about the uk merger control regime itself it has it has a two-fold test for what uh transactions are in scope either that the target's turnover from its uk activities in its last financial year is about 70 million and obviously for lots of startups or small-scale companies that that's a lot of money and so it excludes a lot of business altogether but then there's an alternative test which is that the transaction itself the merger creates or increases a share of supply of 25 or more in the supply of goods or services of any description within the united kingdom and so peculiarity about that test which is tends to be called the chair supply test is that um it requires there to be an overlap between the acquirer and the target because um there has to be an increase in share of supply in the same category of goods or services for that to be triggered and so one feature which is pertinent to what we're going to look at later is that in the uk acquiring a target would turn over below 70 million and where the acquirer doesn't overlap in the uk in the same category of goods or services is out of scope for merger control altogether and so a foreign acquirer and just a change of ownership for example uh doesn't engage united kingdom merger control if we just pop to the next slide james uh so that's the background and then within that overall sort of frame of motion control the united kingdom's already had a certain scope for public interest interventions by the relevant secretary of state and until just a couple of years ago these were really quite limited there were certain public interest grounds and i put them on the slide there media plurality is one that's sometimes reported in papers or newspaper takeovers and so on um stability of the uk financial system and that came in after the financial crash and the lloyd's hbos merger was cleared uh on that basis public health emergencies came in not surprisingly in around june 2020 and national security um the key point about these is again that even though there was a power for the resident secretary of state to intervene on a merger these only applied in the case of mergers which were already within scope of the main jurisdictional tests and again there was no pre-clearance obligation on any of these grounds on any acquirer or any transaction against that there was a very limited what was called a special public interest regime um which did allow for interventions for mergers which were below the generic thresholds which i outlined in the last slide but that was confined to uh government contractors holding confidential defense related information and there was another subcategory for some media cases as well and um that category tended to be used given the reference to defense-related government contractors for traditional armaments and military suppliers if you're making missile systems and you know what the vulnerabilities or sort of codes or performance those systems are then and you're supplying this uk government then the secretary of state had the power to intervene in that case but that is obviously rather a traditional um military capability sort of intervention rather than anything to do with newer emerging technologies let me just move to the next slide and because of that the government started to move in the direction of thinking that emerging threats were less likely or or just as likely now to be in non-traditional military and defense sectors particularly to do obviously with health biological materials um computer and cryptographic techniques and so on and so forth and so um in 2017 there was a green paper consultation on national security and infrastructure and investment which then led to a white paper a year later in july uh 2018 which focused on the potential for threats emerging from sort of rapid technological development and just general changes to the geopolitical landscape and the ambition behind this was to bring in a more comprehensive screening regime as opposed to the slightly um i won't call it ramshackle but slightly more ad hoc motor control regime that had been to date so a more comprehensive screening regime to allow more wide-ranging interventions from a national security perspective and to separate that all together from the competition rage merger control regime which is really trying to do something rather different and um a lot of commentaries obviously noticed that a lot of other jurisdictions have got um similar uh national security screening regimes again so to some extent the uk was playing catch up with a lot of other um jurisdictions now um pending that white paper um that that obviously presaged a rather um thorough overhaul of the uk screening system and as an interim measure the government made a few changes uh as an interim holding position in six sectors which i've uh listed here the first three nurturing dual use quantum technology and computing hardware were brought in scope uh in 2018 and the the latter three advanced materials cryptocurrency authentication and ai um in july 2020 and as a sort of interim position the government effectively knocked the turnover the threshold tests from merger control right down for these to a target turner of just one million or a target share of supply of 25 percent of activity within the uk irrespective and without the need for any overlap by the choir which is the traditional share supply test so a lot more small acquisitions were brought in scope of review in these sectors and um albeit again with no obligation on acquirer to pre-notify or pre-clear any of these if it was so minded and the way the regime worked these were then brought within scope of all the public interest regimes even media plurality but of course in practice the one which would bite on these was national security and so that's the background from generic merger control and then this sort of halfway house position that led up to the current uh draft legislation going to parliament the nsi bill and james is now going to take us in a bit more detail through the first stages of that thanks evan so yeah it's useful to start with the mandatory notification sectors because these are the sectors that are going to be most um heavily affected by the new regime um i've listed on the slide the different the different sectors um that have been selected and highlighted in red those that are um most likely to be relevant to life sciences businesses um there was an initial consultation paper on the exact um scope of these definitions um which has recently concluded and the government has published its outcomes of that consultation um and that is um narrow the scape of uh some of these sectors um uh albeit some of them are still still fairly wide so just if we look at some of those these specific sectors most not life sciences businesses um we've got the advanced materials sector which has an 11-page definition of of all the different things that could come under advanced materials [Music] includes things like advanced composites technical textiles technology graphene additive manufacturing or 3d printing um in in life sciences context um perhaps most likely to catch businesses into the medical device sector that may be using some of these advanced advanced materials um but probably not as as um highly focused on life sciences as um the synthetic biology sector that we'll come on to um artificial intelligence is another potentially relevant sector um originally is a very broad definition which which would certainly call a very large number of businesses including the life sciences sector um including businesses using ai for for drug development or diagnostic purposes for example um it now seems to be a much more much narrower focus and so as we've got on the screen it's using artificial intelligence for the purposes of identification or tracking of objects people or events um advanced robotics or cyber security um probably unlikely now to catch many life sciences businesses unless something like identification of objects could be seen as catching you know identifying diseases or in in screening or drug molecules in drug development um i think probably that isn't what's intended it's you know it's um more looking at um your classic sort of tracking of people in public spaces um and ultimately that's probably something that will be clarified with um the government in the course of uh you know this this legislation moving forward um so synthetic biology is is probably where the biggest impact on um the life sciences sector um is going to be and the the broad definition is on the sort of slide here but it's really focusing on designing or making biological components or systems that don't exist in the natural world so examples of designing engineering biological parts of enzymes gene editing gene therapy cloning and so this is quite a broad this is quite a broad um a broad definition um the government initially talked about um being interested in companies developing vaccines disease resistant crops um novel materials novel sensors dna storage um and the original definition was very broad and this has um this has narrowed down quite a bit um but it is going to have quite a large a large impact we think on um on a number of different you know different businesses in the life sciences sector um so in just just a few real world examples um we'd expect someone producing viral vector vaccines like the the oxygenic oxford astrazeneca vaccine um to be caught by this um a vaccine similar to the fisa biontech vaccine would probably also be called um as well as um many businesses um who are providing services um in connection with the development of those sort of vaccines um in terms of facilitating cloning or dna analysis um uh korean just a couple more examples it is a detailed definition and that you know people need to look at in the context of particular businesses but again a couple of examples um companies developing monoclonal antibody treatments um which is quite common for autoimmune diseases and oncology um probably caught um because they're using synthetic dna libraries um as an example something that's things that may not be called um small molecule drugs are probably not going to be caught because they are um they're not biological um or developing treatments using using compounds found in bacteria in nature and would you know would not be uh synthetic biology because you're using something something designed in nature um but that is that is gonna be a big sector and catch you know quite a lot of businesses so moving on just sort of think well what what businesses and assets are within scope of this um of this regime um it affects any uk entity and companies partnerships and so forth um it also will catch overseas entities carrying on activities in the uk or supplying goods or services to people in the uk and it will also catch assets again in the uk or used in the uk and the sort of assets that this um the regime can apply to is um you know essentially any kind of asset but it's it's it's essentially listed as land um so you know the example would be land next to a nuclear power station or other infrastructure asset might be relevant and tangible assets like physical equipment um but also ideas informational techniques um you know so that could be things like trade secrets database source code for software algorithms so broadly speaking any business or any any business asset with a connection in the uk um is affected by this if um if one of the sort of trigger events for the legislation applies to that entity or asset um so the in relation to an embassy a company um these are the trigger events um for um for intervention um and on the one hand on on the left hand side of the slides um we've got voluntary notification these are the trigger events for this where the secretary of state can um can review a transaction um and you can give a voluntary notification register transaction and on the right-hand side of the the trigger events in a mandatory notification sector which which give rise to an obligation notify um so broadly speaking if you acquire um the acquire shares or votes in an entity which goes above one of these 25 50 or 75 thresholds and that is a trigger event in relation to that entity um the the the fourth trigger event there voting rights that enable or prevent the passage of any class of resolution is uh broadly speaking intended to catch uh overseas companies um and would sort of the 25 50 or 75 percent tests would sort of be met in relation to that test in uk companies and that without voting rights tests will will cover overseas companies where the thresholds are for example different um and then the bottom there's a slight difference between voluntary notification and mandatory notification and in the one of the grants of the secretary of state's review is if someone requires material influence over a company and that's a more difficult condition to interpret because it it isn't a hard line number of votes or a number of shares and it will generally be interpreted under the uk merger control in the same way as under the merger control regime and you know there the cma tends to presume that 25 will give material influence and from around 15 um it can give material influence depending on the rights and um and how the shareholding is meant sharing is structured so some of the factors in deciding whether a 15 shareholding gives you material influence um could depend on how how shareholdings are distributed distributed in the country in the company um so if you know if 50 is a very large holding and everybody else is holding very small percentages and then that may give more influence or if the shareholder has particular rights and for example the veto rights or the right to point people to the board and you know that will increase their influence um [Music] in the context of private companies um you know venture capital investors will very often have those sorts of rights so um yeah so that material influence tests may well be met in relation to venture capital investors who've got at around that sort of 15 15 level um but in the mandatory notification sector sectors um the trigger event requirement is just is at a flat 15 of shares or votes and so if anyone acquires 15 of the shares or votes in an entity they would have to give a mandatory notification um and yeah it's the the thinking behind that is that the material influence is a uh is a rather gray area to impose the sort of sanctions that uh failure to comply with the mandatory notification regime involves so for mandatory notification we've got a very bright line test for notification of 15 of the shares or the votes and then in the course of the secretary of state's review they would need to think about whether that 15 of the shares of votes actually gave gay material influence and and could therefore justify justify intervention just moving on to assets so you know land um plant equipment or ip and the trigger event is acquiring a right or interest in the asset which enables or increases the the acquirer's ability to use the asset or to direct or control its use so this would cover things like acquiring you know direct ownership or partial ownership of an asset leasing or similar rights um and in relation to ip would incu include licensing and including non-exclusive licensing of of ip um again this is like to catch a very large number of transactions in principle and however there is no mandatory notification requirement um for trigger events for assets even if they are in you know the mandatory notification sectors um again i suppose the thinking is that there is um so many potential trigger events in relation to those assets that having sort of penalties uh as a consequence of failing to comply with the mandatory notification requirements probably not appropriate appropriate there um so those trigger events you know may be voluntarily notified or could be reviewed um after the event um and the extent to which that's required is probably dependent on you know how significant an asset it has felt to be or um you know how great the risk of intervention may be uh so i think then um sit back to edmund and talk through the process [Music] thanks i just just managed to remember to unmute myself in time yeah so don't i i'm just going to have in this slide just have a quick sort of bird's eye view of the process then look at the various steps in a little bit more detail um so in a nutshell um what's called notifiable acquisitions which means where one of the notification trigger events has happened and we're talking about one of the key specified sectors advanced materials synthetic biology and so on so a notifier acquisition is void if it isn't notified in advance and cleared and so void just means it's treated at laws if the transaction documents were of no effect the the responsibility to notify in that case lies on the acquirer rather than the target and once notified there's a two-stage process an initial review and then the possibility of a second stage call-in or more detailed national security um assessment for the non-mandatory sectors which james has been talking about um they can be called in for review after the event um and so for those if you want there's an option to pre-clear them and where any transaction is called in for review there are for national security grounds there are three possible outcomes an outright clearance without more a clearance but subject to certain conditions which could be to do with how assets are managed how companies act or whatever or more most draconian of all um outright prohibition and in the case of a completed transaction which is called in that prohibition would translate into a requirement to unwind uh the transaction and there are severe penalties in the case of the notifiable acquisitions the mandatory sectors for completing those uh without prior notification and clearance uh okay and in the next size i'm just going to look at those stages in a little bit more detail okay so let's say we're in the mandatory notification space um what do we do well we assess our transaction first of all against the 17 key sectors does it do the targets activities fall within those descriptions and then has there been a notification trigger um and those are the acquisitions of votes or interests at 15 25 50 and 75 percent uh what do we do if we're not sure well um the government has helpfully um offered or has said it welcomes the chance to give informal advice where people are not sure and i just put the email contact there it remains to be seen how helpful that's going to be but i suspect it could be useful in marginal cases the advice you'll get is non-binding um however it might be useful in a few cases i've listed some here obviously if you're unsure how to interpret a definition in an auction process uh it might be useful because that's a rather non-standard relationship between a pool of potential acquirers and the target it could be useful in cases where you're not quite sure if you can get all the information together to get that notice to a fit state to put in and the government also indicates that informal advanced discussions could be useful in some cases to reduce the actual clearance time needed for the screening okay next slide please um so let's say we've we've identified that our transaction is within scope of a mandatory notification it's a notifiable acquisition well as i said the transaction will be void if it isn't uh pre-notified and cleared by the secretary of state the notification itself just in talking terms of mechanics is going to be in a prescribed form there's currently a draft version out um on the government website and i put the link there the notice itself currently it's an eight pager um it's rarely detailed but it's all pretty much all factual information required rather than anything else and so uh obviously details about the identities of the acquirer and the target the nature of the transaction um what description of what the target does and drilling down into the ownership structure of the acquirer so right through to ultimate beneficial ownership and so on and so forth so the inquiry isn't expected in that notification to make any comments or assessments or submissions about whether there are national security issues or not it's purely a sort of rather matter-of-fact reporting of the transaction itself now um there's a bunch of required information for that notification if you send it in and some of that information is missing uh the department base will just ping that back to you saying so uh we can't do anything until you complete it so the notice can be rejected as being incomplete and then it goes back to the acquirer to make good any information gaps and send it back in thanks james uh okay so once the notice is complete and has been accepted as complete the process starts improper and that's what starts the various of time limits and clocks running and so your mandatory uh your managing notification your notification has been notified the notice has been accepted there's then a 30 day or 30 working day period rather for a secretary of state to do an initial screening and at the end of that period there are two possible outcomes it'll either be called in for national security assessment um under a call what's called a call-in notice in the in the legislation or secretary state will issue a no action notice which basically means nothing uh well as it says uh go ahead so it's effectively clearance at that preliminary point and the government's impact assessment for legislation anticipates that so 18 or 19 out of 20 of these initial 30 working day notifications will get no action notices at the end of that period so um it's only expecting even of those that are notified in a very substantial or very insightful minority to be called in for actual security assessment um the initial plans were that a lot more information about what was cleared what was called in what was given no action notices was going to be published uh there were quite a lot of pushback in consultation about that and probably rightly and so um the decision whether to call in a notified acquisition or to show no action notice is not expected to be met anything which is going to be published as a match of routine so the the fact that you've submitted your notification and that you've had your no action notice um after 30 days or that it's been called in is not something that is going to be in the public domain um the government will use the word routinely it's hard to see necessarily at what points it might go against that presumption but but who knows there might be some uh okay next slide okay so let's say we're one of the unlucky ones we're one of the one or two out of 20 that gets called in for an actual assessment and i'll just say also that this call-in is the same process which would apply where a voluntary or non-mandatory acquisition is actually called in so a further further time periods then unfold an initial period of another 30 working days for the assessment and then the possibility for government to extend that by further up to 45 working days if if it's considered reasonably necessary by the secretary of state and then even at the end of that there's a possibility for a rather odd concept of voluntary period where but it has to be by the agreement with the acquirer and it's hard to see that um because by that point we've already had the initial 30 days of the first phase then the second 30 days then 45 working days it's hard to see that very often there will be any need for this further period given that the assessment itself is is on fairly narrow grounds these time periods the clocks can be stopped at any point if the government issues a request for further information by issuing an information notice and it also has the part to actually require attendance in person uh as a witness as well an attendance notice and so these clocks can in principle be stopped while some further information outstanding inflation is being sought and until it's it's submitted or made available and just one other point to mention doing this sort of assessment process is that the government can issue interim orders and these are familiar to people under merger control to stop a potential acquisition going ahead in a way which would make any merger control remedy ineffective and so it's possible that at this point an order might be issued um so preventing assets being hived up or integrated or required or confidential inflation passing from the target to the choir or or similar sort of similar sort of um operations which would then make any subsequent blocking order rather harder to implement great let's move on okay so our call-in periods our assessment periods have worked through and we get to the end of it and as i mentioned in the initial outline that end looks like a number of different things it can look like a no action notice called the final notification in other words a complete clearance or it looks like a final order which is what happens where there's going to be government intervention in the transaction and for that sector state has to be satisfied on the balance of probabilities which is some extent to raise low threshold that the transaction poses a national security risk and that final order again looks very similar to what we see in merger control that the transaction can be blocked or it can be permitted subject to conditions or in the case of a completed transaction which is called in after the event as a last resort it could be required to be completely unwound and it's anticipated that the information about the final orders uh so these are really the only cases where actual interventions are will take place as opposed to no action notices that that information will be published it remains to be seen in what detail and to what extent any reasoning behind a national security concern is made public cloud imagine not very much will be um if you're on the wrong end of one of these decisions what are your remedies well they're not um that extensive uh again rather like merger control or in some parts of motion cloud there is an option for judicial review of most decision points during most section state decision points during this process are subject to judicial review judicial review normally has a time limit of three months um well promptly but three months at the outside so whereas here under the statute that time limit is is truncated to 28 days so if you're on the wrong end of one of these decisions you don't have very much time to decide whether you have a case for judicial review and if so to get everything together and actually launch proceedings on that basis so it's kind of put up or shut up regime in that respect the other point about digital review is that a court is going to be unlikely to almost certainly won't impose its own discretionary judgment as to the degree of security risk um where obviously it would be considered more probably a matter of government as opposed to intervening on procedural proprieties or other classic grounds for digital review um should also just mention here that this national security process even though it's totally separate from uh the normal competition measure regime may run in tandem because in principle there's nothing to stop the transaction being within the merger thresholds we looked at at the start of the session under competition grounds to do with its effect on the market but also to stray into one of the um mandatory notification or voluntary notification areas um and to have a national security overtones and in that so in that case the process is to some extent run in parallel but it won't be surprising that um the national security card will trump merger control so if a merger happens to be under both regimes and is cleared on competition economic grounds it can still of course be prohibited under national security grounds under the nsi regime great um let's just move on uh so as we've as we've hinted earlier in the session a huge departure from merge control here is in the sanctions for non-notification and where we have a notifiable acquisition that is one of the key sectors target active in one of the key sectors and one of the trigger events happening 15 25 50 or 75 acquisitions then the sanctions for not pre-notifying and not pre-clearing are rather eye-watering and those are the following a fine of the higher of as of the apropos of the acquirer 5 of global group turnover or 10 million pounds or in the alternative a criminal sanction which is a term of imprisonment for up to five years and or a fine and the criminal sanction can be either on summary conviction or by indictment and so the fines are the sort of standard criminal justice fines for those levels of conviction which are obviously a lot smaller but um obviously that would bite on individuals involved and the two areas or two actions which attract the very significant fines of the following as i said completing a notifiable mandatory pre-notification transaction without pre-notifying having it cleared or failing to comply with an order and the reason for the second one is that um if an order says you are not allowed to acquire these assets and you're going to acquire them anyway then um that's always just a flouting of that order there are so a second level of somewhat lesser but still significant penalties for more procedural breaches during this process and again these are rather similar to the ones that exist in merger control and those are things like failing to comply with information notices destroying information providing misleading information and so on and so forth so still significant penalties for so non-compliance on a procedural level but as i said the main headline penalties are for failing to pre-notify a notifiable transaction or for breaching an order which either imposes conditions or prohibits um a transaction from going ahead just mention also that notifier acquisitions so these obviously should be notified but let's say for whatever reason one isn't it can be validated by the secretary state after the event which means that it becomes having been legally void then becomes not void so it becomes a legally valid transaction that that reactive or post post hoc validation doesn't however remove the the sanction that would apply as above in the slide for failure to notify it in the first place and just briefly while we're on process on the next side i think i'm going to look at time limits which are of some interest as well so let's start with the voluntary ones so these are the all asset acquisitions rather than equity or voting rights and um also actually acquisitions outside the the key sectors the 17 key sectors so for those obviously if you pre-notify uh that's something you can do but if you don't how long before you're out of the woods well in principle there's an absolute long stop for intervention five years after the date of transaction but a shorter one that once the secretary of state becomes aware of the transaction he's got to use to lose it if it's not called in within six months of that awareness then the call in power for non-mandatory um transactions go falls away and when i say become aware i don't i don't mean you have to write secretary of state but any publication in normal media so a publication on company websites things picked up in the trade press and so on and so forth normal so making public will count as awareness and so in that sense this is somewhat similar to the the merger the current motor control regime although in that case the time is four months rather than six here what about where you've missed a notified it wasn't it from acquisition and it hasn't been notified well again secretary state within six months of becoming aware has to either call it in for national security assessment or issue a validation notice which as i said doesn't affect the penalties as such and in those cases where we're in a mandatory notification scenario there's no ultimate long stop of five years or anything else at which that power falls away so in principle um if something only becomes known years and years after the event it can still be called in um if it's in one of those management sectors at that point and um i won't go into detail now but there are so somewhat similar time limits for anything between the date that this legislation was laid in draft 12th of november and the commencement date of the legislation when it gets royal sent as well great let's just move to the next slide um i just want to briefly talk about so obviously the procedure if we're in a mandatory sector is pretty obvious because you have to notify you just crack on with it what if what if we're not in a mandatory notification scenario what are the issues well as i said there's no requirement to pre-notify um but there is the possibility of that post-completion call-in and potential unraveling and a value judgment has to be taken on is there any credible national security issue here or not i suspect we'll see where we're talking so gray areas at the margins we'll see acquirers putting in cautious pre-notifications anyway and the reason for that a few reasons one is that the notification isn't actually a huge process as it's an eight pager it's factual information most of it'll be there in transaction documents anyway and it doesn't really need i shouldn't say this but it doesn't really need a huge amount of legal advice to fill that in because it's factual information about the target the acquire and so on and so forth uh for voluntary sectors i should think the vast majority will get a straightforward no action letter after 30 days if not soon as well so it's a pretty quick clearing that out of the risk matrix and the other factor is that there's no fee payable for this and if that you might say well why should there be i just say that in merger control even a tiny acquisition um even if it's clear that's subject to cma review has a fee um you know and these fees range from sort of 40 000 up to 160 000 just for the privilege of having had your merger reviewed by the cma and so that's in the sort of cost-benefit analysis the fact that this is just a question of submitting that form hopefully not hearing much more on getting your clearance within four or five weeks might suggest that a lot of people will where they have any national security concerns whatsoever um will submit cautious pre-notifications in the voluntary sectors and as i said if we're in a voluntary sector it is called in then the um that assessment process the initial period for the period and so on so forth and remedies are all the same as for the mandatory sectors great and i think james now going to look briefly at we've been talking about national security but does anyone actually know what it means thanks um to which i think the answer is probably no um so there's a lot of resistance to trying to define national security as this legislation has been going through parliament we're not going to get a definition of national security um i think it is fairly clear that it is about national security and so it shouldn't just be about economic interests or preserving national champions in particular sectors um uh although there's often political desire to do that so whether those those um factors leaking will remain to be seen um there is a statutory statement of policy intent which is kind of trying to define some level of the sort of national security risk and what is involved um and this looks at three different areas there's there's the target risk which is the sensitivity of the asset or the technology and i think one helpful way of looking at this is um it's kind of the james bond villain test and assessing you know if if your james bond villain got hold of this what could they do could they create a viral disease that will kill millions could they bring down satellites or airplanes that sort of thing so that's sort of that's the level of and at least the level of discussion around around much of the target risk hopefully that will get slightly more nuanced as things develop um there's also the control risk so the degree of control acquired by the acquirer will um factor into a decision about whether to to prohibit the transaction on national security grants so uh you know 25 control of the company um would obviously incur less control and that would be less of a control risk than acquiring 50 or 75 company and there's also the acquirer risk which is you know the nature of the threat um posed by the acquirer and and that is really you know how dodgy is is that acquirer perceived to be um you know are they from a state that is perceived as a um perceived as a threat or uh or you know state where there is you know uh terrorists you know high level of terrorist activity or sort of money laundering risk that's that sort of thing um i mean but all this comes out we are going to end up with quite a subjective criteria and a degree of political risk in in transaction planning and and if you look at you know you look at this over the last few years um i'm not sure you know three four years ago anybody would have thought that tick tock or wechat were you know national security risks and um but they were targeted by the u.s government as um national security risks on the basis of access to to individual data um and in the uk in the uk parliament there was discussion about whether there was a gap in legislative in the legislation and that social media was not only not regarded as a mandatory notification sector so you know there is still um possible um you know impossible expansion of the area seen as concerned based on political concerns um we've all seen you know even just in the last few months you know there's a degree of vaccine nationalism going on at present um restrictions on export of vaccines and and so one could see that you know vaccine development and production capacity you know could well now be regarded as a matter of national security in a way that you know probably wouldn't have said even two years ago that was you know that was a high high priority for the government or something on its higher its agenda uh so just wrapping up some final thoughts um the the government's impact assessment um talks about maybe one thousand two to eighteen or one thousand eight hundred and thirty notifications a year um i think most people think this is likely a significant underestimate um given the breadth the sector is covered by mandatory notification um and given the fact that you know it's not just m a transactions that we're talking about now a lot of venture capital transactions where where investors you know take 15 25 of the equity um will potentially be subject to notification um the greatest burden is going to be in the mandatory notification notification sectors because they'll at least need to go through some of the process even if there's no realistic threat to national security um so it is all going to need to be factored into transaction timetables and transaction costs um there is a question mark about what impactness will have on the uk as an attractive investment destination um you know will this that it will provide some general friction on investment in the uk and there will be a concern that it may make it more difficult to exit in the future it's very difficult to say at this stage what sort of impact it has um say my guess is probably not a huge impact compared to you know factors like brexit or just generally the quality of businesses and um and research and development in the uk um and he doesn't say what's the space it's the legislation isn't yet in force um say in the next next month thoughts two we're expecting the legislation to be finalized and there will be some secondary legislation um which may or may not have some impact on the process and some of the things we've been talking about here but it will be um yeah it's going to be an interesting piece of legislation quite a challenging piece of legislation um to deal with businesses going forward so i think that is us so i think elaine then whether we've got any questions you have many questions actually so um which is good thank you for uh asking them i'm i'm not gonna take in the uh coming order but just because i think it's more of it so let's take with the top level so richard was asking about whether it was uh it was something very specific to the uk or something that was business as usual in in other countries and and so maybe more catching up which it seems to be but correct me if i'm wrong yeah i think i think it is um it is to a degree catching up with um with other jurisdictions so it's it's similar in concept to um the cfr us legislation in the us although um in the committee stages for the legislation evidence was taken from a number of u.s lawyers and they did comment that um the uk approach was too large to be much more embracing than their regime and there are there are other legislative countries have similar pieces of legislation i know uh specifically that was in france it is it is a more general theme i think that um i guess there is perhaps a sort of greater degree of nationalism um across the world to some extent and so this is you know this is part of that general theme and as i think there's a sense that the uk is perhaps going further than a number of other regimes yeah so it's more the way forward is having more of that worldwide done less on that and then just a question on the scope so in your last line actually you you put the an idea of numbers so they were talking between the thousand and thousand eight hundred and thirty cases that's cross sector yeah i mean that's that's the government that's the government sort of sense overall i mean i don't i don't think there's any sort of breakdown okay because one of the question was if we had any sense of how much that would impact life science so if we had any idea of how many cases we may see in life science or many how many companies would fit in the categories uh or the bracket that you're meaning which um yeah you have an idea great if you don't i think yeah i think it's questioning is a very rough match because yeah a the government's estimates are probably wrong i think that's probably our starting point they they estimate but somewhere roughly between a thousand and two thousand notifications a year and probably as james said most those will be in mandatory sectors the 17 key sectors but some may be outside that as well in voluntary things so let's say 2000 is correct we've got 17 key sectors well there's more mathematicians on the call than me but that's not a huge number per sector if they're evenly distributed the government then thinks there might be about a hundred call-ins per year again it's probably going to be wrong but um that that's his current his current best guess about 100 call-ins and about 10 remedies so out of one in ten that's actually called in for that some more detailed scrutiny one in ten maybe gets either blocked or gets some conditions imposed and just by way of context in under the current merger control regime which allows for national security and intervention there have been i think in the last 18 years 12 national security interventions in total um and so if the government's estimations are correct that's roughly a 15-fold increase in national security interventions in the uk than what we've seen here the two as to how that affects life sciences in particular very hard to say but i think i mean there may be figures out there that suggest you know preponderance of m a and venture capital activity and life sciences in the uk is so it's probably a bigger sector within those 17 than some of the other sectors uh and so probably sort of well i'm digging myself a whole because i can't give a number um but come back to us in a couple of years and we'll give you some stats yeah that's fine and i think it's also to figure out a number of companies or activity that would fit in that category and if you look at headlines how many big acquisitions we've seen in life sciences it's not so many um i think the the number of transactions i suspect you know the biggest concern is probably to a degree in the in the venture capital investment field because m a transactions are typically big enough that you know everybody can look after themselves um you know to the extent that venture capital transactions involve going above these thresholds and requiring notification that's a bigger burden for sort of smaller transactions and i think it is difficult to say exact number but also on the initial definitions a lot of the investors that we were talking to felt that most of their portfolio companies would fall within one of those definitions i think it's gone narrower um and you know we've kind of just been doing some rough analysis based on the sort of the businesses we deal with and you know very roughly probably it's probably not as many as sort of 50 percent are caught by the sort of definitions but you know that's that's quite a lot of you know scale across the market that's quite a lot of businesses ultimately the other point to mention which we didn't cover especially in slides is that the the notification triggers are um cumulative so if you're having an investment round that tips over one threshold and then a later investment round tips over another threshold that's a fresh notification event and so you know even the same company investor relationship could go through this have to go this this process more than once as as shareholdings um so rise up the ladder okay i think it's probably fair to say that obviously the um it's still in draft phase and still have you know the bill hasn't is not it's not um it's not finding legislation yet so um you know certainly stakeholders like the bia are still kind of inputting and um you know asking the government to kind of further narrow this definition of um synthetic biology um so yeah i think it is a question as james already said watch this space and kind of keep an eye on it because it's definitely not a done deal yet although perhaps it went straight too much further but worth worth keeping on and just picking up on sorry just because the point about knowing definitions the way the legislation's structured is it's the primary legislation and then the definition of specified sectors is left for secondary legislation and so there is a lot more flexibility to update that quickly and either narrow bring things in or out of scope or narrow improved definitions and so we may well see experience sort of improving these definitions with a bit of time okay thank you yeah i'm just conscious of time and we have a couple of more specific questions that if you don't mind i'd like to ask uh so if you're an oversea you are an overseas fund acquiring ip know-how from a uk academia for the purpose of setting up a uk entity which you control are you in scope of a mandatory notification i think potentially uk entity is is in scope of the mandatory notification because the uk entity will be issuing shares to the overseas investor and and so the overseas investor will be acquiring control of that uk entity um yeah and sort of subsequent to that what about if the shell company already exists if that makes any difference um yeah i don't i we haven't really got to the bottom of how you might sort of structure the timing so i could sort of see if you if you set up a shell company that has no ip doesn't have any rights to any ip and then that ip is acquired by license from a yeah from a technology transfer institution um yeah perhaps on the face that there isn't a mandatory notification because the entity was not doing that business at the time but it it would be again it would be a bit of a gray area because the entity obviously had the intention of doing that doing that business um and given the consequences i'm not sure many people are going to want to take too much of a risk in trying to sort of you go go for those go for those gray areas i mean it may be something that one can get guidance guidance and bees on that's um that's part of the process but i think it's it's a slightly risky approach taking um you know trying to sort of finesse the legislation too much yeah just the other thing to mention is that the legislation itself has got a rather detailed schedule about what gaining control means in the case of indirect and joint control and so on and so forth so um ing to the exact structure in a transaction you'd want to look at that schedule in a lot of detail as well but as james said there's not a lot of downside for a cautious preemptive notification if in doubt really compared or upside yeah not all downside compared to not doing it and so um i doubt we would see people attempting to structure something on a sort of marginal basis okay so i'll take that as the answer for now and then jim if you have further question i will um ask just james and edmund and just another one a bit more specific so what about under seller perspective so can i reach out to the agency as the seller to clear my company so that i can confirm to potential purchasers that my tech won't fall under national security concerns and what about if i'm non-exclusively out licensing rather than selling my company sure okay so so in this case it sounds as if we're in the space of the non-mandatory um notifications and so maybe we have a tech license where we think there might be an issue can we as the as the owner of that the seller um do anything to well ultimately it's a risk assessment for the acquirer because it would be the acquirer that would be subject to any call in um i think we will see sort of cooperation between acquirer and target or seller in any informal contact with bays to see if there are any concerns or not so i think the seller can have a role in that um as i said the the informal advice from bays will be non-binding so it could well be that you'd get a fair amount of comfort which would obviously smooth the transaction and make the the acquirer more comfortable but ultimately it'll be at the acquirer's risk and so um if i'm the seller i want to make sure in my transaction documentation that any responsibility falls on the acquirer and so um we sort of structure provisions ingly but but yes you you can probably do something to smooth smooth things and and if and any sort of pre-notification uh discussion with baze could actually speed the process as well so there is stuff you can do but ultimately um if there's a if there's an actual legal consequence it would fall on the acquirers so it's ultimately down to acquirer okay thank you and and same if any follow-up i would probably leave that to later uh a very quickly a quick one just consists of time um so how do we think this regulation will enable safeguarding against acquisition through proxies so how do we think these regulations so the national security bill will enable safeguarding against acquisition through proxies uh so given challenges that exist in identity in identifying beneficial ownership in overseas companies yeah um i'll take this one first um again it's the acquirer's responsibility to clear and the notification is the req acquirer's responsibility and so presumably the acquirer will know what its beneficial ownership chain is and if it's an intermediary within that chain would have the means to secure the information and um as i said the the legislation itself contains a detailed schedule about indirect control so control exercise to a nominee company for example still counts as control or through any other form of intermediary um whatsoever and so i i think what we'll see is if there's if there's opaque ownership at the top then the government will probably just reject the notification and say well there's not enough clarity here about who's ultimately in control who's putting the strings for us to accept this and start our 30-day clock running and so on and so forth and so what would happen is that would just get put back to the acquirer to say give us some better information and i suppose the other factor is that you know we're talking about national security so i don't know to what extent the government has other sources of information to uh verify you know the veracity of any claims about director and direct ownership as well before it accepts a notification but i suspect they may do and so and i again i think it's going to be absolutely up to the acquirer to satisfy any concerns there might be about who the ultimate beneficial owner or controller is that the process can't really proceed unless the government's satisfied that that information is there and that it's reliable and credible the government also has the ability to call in witnesses or require provision documents or information as well subject to fairly heavy penalties for non-compliance and heavy penalties for misleading information as well so i think i think it would be i think most acquirers will do their best to get sort of clear path of beneficial ownership right to the top of the chain as quickly and as well evidenced as possible in order to smooth the um clearance of their transaction and i think it'd be quite difficult for ones that wanted to hide behind an opaque ownership chain to progress the application and obviously if something's cleared on the base of correct information and that comes to light subsequently it can then be uncleared and so um i i think generally we'll see acquirers being cooperative and trying to be sort of transparent and frank about that okay yeah just interesting question though no i think it does and and i think that makes sense it's it's also clarifying when you said that it's strongly on the acquirer's side and and so patrick was the question about the seller um made a comment and patrick feel free to unmute and if you want to make it yourselves but uh just to say that if the seller can't pre-clear transactions that may cause well issues or unclarity for investment in life science because that means this investor can't determine whether it's investing in a risky technology or not and maybe having something that would allow this clearance for for technology that fall outside of the scope would be useful because that may give them a sort of green card for for being acquired or get some of their assets required um yeah i mean i think that's i mean i think that's right and i mean it remains to be seen how that will work and that i can see i can see companies getting um you know getting formal legal advice for example as to whether they sort of fit into particular sectors um and potentially using that sort of channel to be with the you know for informal guidance you know which won't i guess won't give investors 100 certainty but may give them enough comfort i mean again it may give them enough comfort to perceive the transactions on the basis that the reality is with all of this is that i mean as evan said i think it's vanishingly unlikely that most transactions will actually be sort of subject to sanction so it will be it will be mostly a process um but yeah it's gonna be it's gonna be a bit of a drag but hopefully not too much um too much of a burden yeah and i just say so thinking about that in in a sort of the timetable of an investment transaction um the notification trigger or the possibility is that a transaction's in progress or in contemplation and for a most straightforward clearance um it's six weeks at the outside although possibly for straightforward cases one would hope assuming the department's property resource is gonna be quite a bit less and so it's something that can it's a risk that can be cleared out um pretty early in transaction planning and you know progressing an investment round or something like that one would hope um so hopefully that can be done uh it can just the notice can be put in and a few weeks later hopefully clearance comes while we're getting on with all the other documentation so on and so forth so hopefully it can shouldn't be too much of an impediment in that way patrick was there anything you wanted to add on that topic no thank you very much it's very interesting and informative okay good well thank you for your contribution so i think it's coming to an end rather late uh the hey that was very interesting and really good comment on how useful that was so as i said seminar was recorded anyway i'll send the link to those who attended and those who registered but didn't attend for some reason i guess everyone is very busy and of course they will get back to it and they can contact you james edmond and rachel if they have any specific questions but thanks very much thank you all thanks