Foreign investment and national security
September 2022 | ROUNDTABLE | MERGERS & ACQUISITIONS
Financier Worldwide Magazine
September 2022 Issue
Despite a period of significant uncertainty, global foreign direct investment (FDI) has rebounded sharply over the past 12 months. Concurrently, governments have established new or strengthened pre-existing FDI review regimes to require filings for transactions that may give rise to national security risks concerns, as well as expanded jurisdictional reach to provide regulators with increased authority and discretion. Going forward, there is every indication that the global FDI landscape will continue to be active, with national security oversight a key priority.
FW: How would you describe key trends in foreign investment over the last 12-18 months or so? What overarching developments would you highlight?
Kaniecki: Governments around the world, particularly in Europe, recently have established new or strengthened pre-existing foreign direct investment (FDI) review regimes to, among other things, require filings for certain transactions, expand jurisdictional reach to additional sectors and businesses, and otherwise provide government regulators with expanded authority and discretion. Primary concerns relate to foreign investments into companies operating in sensitive sectors, including critical infrastructure, developing sensitive technology, including artificial intelligence (AI), quantum computing and biotechnology, as well as collecting sensitive data and information. While many developments started before the coronavirus (COVID-19) pandemic, some were turbocharged by strategic considerations created by the pandemic, such as the need to protect important healthcare-related and other supply chains.
Peacock: As the global economy emerged from the COVID-19 pandemic, FDI flows followed suit and recovered to an estimated $1.6 to $1.8 trillion in 2021, surpassing 2019 levels. However, there are multiple factors which may constrain FDI flows in 2022, including the war in Ukraine, the cost of living crisis and climate change. It is also clear that, in response to perceived threats to national security – and, in many jurisdictions, even broader concerns – global FDI scrutiny has reached a new high-water mark. Take the new National Security and Investment (NSI) regime in the UK, introducing mandatory filing obligations in certain sectors, or the European Union’s (EU’s) framework regulation on FDI screening, which has resulted in almost all EU member states implementing review mechanisms. This is indicative of the global trend toward greater scrutiny: even if the vast majority of transactions are unlikely to cause concerns, governments will want to take a look.
Mancuso: There continues to be intense focus on and scrutiny of investments from China, including across a variety of sectors, from semiconductors, to pharmaceuticals, to real estate. The focus is somewhat greater in the US, but the UK and EU countries are quickly catching up. I would suggest that one of the least reported trends is the coordination between the Committee on Foreign Investment in the United States (CFIUS) and its non-US counterparts, especially in the UK and European member states. The information-sharing and coordination on regulatory approaches, especially with respect to challenging cases, is a trend that I do not anticipate going away any time soon. Moreover, regulators are acutely focused on transactions that may appear to be too small to warrant scrutiny, for example minority investments reflecting less than 20 percent of a target’s total equity and transactions valued at below $1m. At a broader level, there continues to be both a policy and political consensus in the US and Europe generally that foreign investment screening is an important tool of statecraft in the new macro environment.
Kadel: For obvious reasons, foreign investment in the US – at least as measured by submissions to CFIUS – was down in 2020. But it rebounded strongly in 2021 and 2022 appears to be continuing at a significant pace. The interesting thing is considering: what is meant by foreign investment? The tendency may be to place this question in the context of non-US investment in the US. Increasingly, national security reviews of ‘foreign’ investment must be considered from the perspective of multiple jurisdictions. Indeed, in July 2022, in its first major action under the NSI Act 2021, the UK government blocked a Chinese company from licensing vision-sensing technology developed at the University of Manchester. And that case did not even involve an investment or acquisition – the transaction in question was a proposed licensing agreement. The bottom line is that volume of foreign investment questions, and the meaning of both ‘foreign’ and ‘investment’ for purposes of national security reviews, is far beyond historical understandings.
Lee: The past 12 to 18 months have been marked by significant uncertainty caused by a number of global economic trends, including the continued recovery from the COVID-19 pandemic, rising inflation and fears of recession, and the stubborn persistence of global supply chain problems. Nevertheless, according to the United Nations Conference on Trade and Development, global foreign direct investment rebounded sharply in 2021, up 77 percent to an estimated $1.65 trillion, from $929bn in 2020, surpassing its pre-COVID-19 level. Still, uncertain economic factors have had an outsized influence on where and how this investment is attracted. For example, developing markets, which are more dependent on direct and greenfield foreign investment, have been slower to attract investment, in part due to the continuing effects of the pandemic. And today’s uncertainty is not just limited to developing countries. In the US, there has been a depressing effect on foreign investment from the perceived increasing threats to democracy and political instability. We are also seeing slowing outbound investment from China, due to a number of factors.
“The best advice to a foreign investor is to be proactive. Assess where there could be national security concerns associated with an investment and identify ways to mitigate those concerns.”
FW: Which sectors seem to be of interest to overseas investors? What factors are driving activity?
Peacock: Investment continues to flow into a range of sectors including telecommunications, life sciences and critical infrastructure. In more developed economies, we have seen a recent focus on higher-tech sectors such as semiconductors and information, communication technology, batteries for electric vehicles and software for autonomous transport. This is being reflected in amendments that G7 countries have been making to their FDI review regimes. For example, in France, technologies related to renewable energy production and key technologies are now in scope. Similarly, Germany has added 16 high-tech activities to its own regime. Meanwhile, the new UK regime to scrutinise investment captures a range of high-tech sectors, including AI, advanced robotics and advanced materials. The increased volume and scrutiny of investment in these sectors highlights the ever-expanding demand for technology as it continues to permeate everyday life. From a range of uses such as phones, cars and the infrastructure to support and develop these technologies, investment and government scrutiny show few signs of abating.
Mancuso: We have seen interest from overseas investors in a variety of sectors, including software, biotechnology, semiconductors and others. Agriculture is another sector that has been of particular interest for non-US investors, including what I would characterise as more ‘sensitive’ agricultural deals, such as animal genetics matters. Investors across the world have also been very interested in targets that develop or design green technology, for example electric vehicles or solar power infrastructure, in part because of the many government subsidies and funding options available to such companies. The ‘green technology’ investment thesis is also highly aligned with many private equity sponsors’ new focus on and awareness of the importance of environmental, social and governance (ESG) metrics in investing.
Kadel: Technology investment continues to have great appeal, but it is difficult to say that there is any one sector that appeals most to foreign investors generally. In my experience, it really depends on the investor and the investment opportunity. In other words, activity is not driven by a specific sector, but rather appears to be driven by specific opportunities. Of course, the US remains an attractive destination generally for foreign investors for a variety of reasons, including the strength of US innovation and industry, the large consumer base and productive workforce found in the US, and government policy that welcomes and encourages foreign investment and legal protections for foreign investors.
Lee: We are seeing increasing activity in the infrastructure and project finance sectors, including highway, toll road and airport projects, and defence and government contracting, even though those deals are more difficult to process through CFIUS. We have also seen a significant transaction increase in the services industries. Among the factors that appear to be driving this activity in the US is pent-up demand following the COVID-19 pandemic lockdowns. Among the factors that still appear to be depressing activity are the continuing hostilities in Ukraine, with the accompanying increasing food, fuel and finance stresses. Climate disruption also appears poised to be a depressing factor for the remainder of 2022 and beyond.
Kaniecki: According to public information released by CFIUS, the majority of FDI notified to CFIUS is in the manufacturing sector, followed by the finance, information and services sector, the mining, utilities and construction sector, and the wholesale trade, retail trade and transportation sector. Within the manufacturing sector, most FDI notified to CFIUS falls in the chemical, computer and electronic product, and transportation equipment subsectors. Within the finance, information and services sector, most FDI notified to CFIUS is in the publishing and professional, scientific and technical services, telecommunications and data processing, hosting and related services subsectors. Within the mining, utilities and construction sector, the majority of FDI notified to CFIUS targets the utilities subsector. Within the wholesale trade, retail trade and transportation sector, most FDI notified to CFIUS occurs within the support activities for transportation subsector, as well as the durable goods and health and personal care goods subsectors.
“As coordination and cooperation between countries’ investment security regulators increases, I expect that monitoring and enforcement efforts will increase as a natural result.”
FW: How would you characterise recent government policies and initiatives to promote or disincentivise foreign investment? How open are markets generally to inbound investment?
Mancuso: We have seen a crackdown on direct and indirect investment from Russia and Russian nationals as a result of Russia’s invasion of Ukraine. In this connection, the European Commission (EC) recently released guidance on the potential risks that may be posed by investments from Russia and Belarus. As a general matter, however, most markets continue to be quite open to inbound investment that does not pose a risk to national security or public order. In the US, CFIUS continues to actively monitor and inquire about non-notified transactions that it believes may be within its legal jurisdiction and may raise national security questions. While CFIUS clears the vast majority of transactions that it reviews, we have seen CFIUS staff ask many more questions on deals – in some cases, more than a dozen rounds of Q&A – including on transactions that it clears without mitigation.
Kadel: There has been a lot of government policy attention on ensuring that foreign investment is consistent with national security protections. In addition, the concepts of what constitutes national security threats, vulnerabilities and risks have greatly expanded from the historical understanding. At the same time, I do not believe that this means that there is a policy intent to disincentivise foreign investment generally, at least in the US. Perhaps there is an intent to disincentivise certain foreign investment and foreign investment in certain sectors, but the benefits of foreign investment continue to be recognised and supported through official policy.
Kaniecki: Over the past few years, government policies and initiatives in various countries have been developed to counter new and emerging threats and protect national security and other strategic interests, with such interests specifically identified and defined by each government, but often related to similar issues such as critical infrastructure, novel, dual-use, or export-controlled technologies and sensitive personal data, while balancing the economic need for FDI. In many cases, FDI authorities have expanded their jurisdiction over different types of investments and categories of foreign investors and have been given broad authority to intervene in transactions by, for example, inquiring about and calling in non-notified transactions, imposing measures or internal controls to mitigate national security and strategic risks, blocking or unwinding transactions, and imposing punitive action. That said, the vast majority of notified transactions are cleared, with or without mitigation, by FDI authorities. On some occasions, FDI authorities will block or unwind transactions, or impose significant mitigation measures, but such cases are generally the exception to the norm and typically involve important national security interests such as semiconductors, advanced drones and robotics, nuclear and defence aerospace technology, and sensitive data. This underscores that most markets around the globe remain open for business and welcome inbound investment.
Lee: In the US, one of the most significant and interesting new government initiatives involves the work of a bipartisan group of Congressional leaders on developing a new foreign investment screening regime to review outbound investments in China and other ‘adversarial’ nations. This proposal is still in its early stages, but the general bipartisan consensus is that there is a national security threat relating to outbound investment, and there is a need for a federal oversight panel. This panel, called a ‘Committee on National Critical Capabilities’ (CNCC) would be empowered to review a limited slice of these investments, particularly in China. Current negotiations involve disclosure requirements for US companies investing in certain sectors in China, such as semiconductors and pharmaceuticals. This proposal is modelled on the CFIUS process and would enable the CNCC to review both disclosed transactions, as well as non-notified transactions.
Peacock: What is remarkable is that, although there continues to be an increase in the scrutiny of foreign investment, including by the world’s largest economies, the same economies publicly still encourage inward investment. This tension is particularly clear in the UK. Following Brexit, the UK government has been keen to stress that the UK is ‘open for business’ – but at the same time the new NSI regime signals to investors that in an expanding number of key sectors there is now another hurdle to overcome in order to invest in the UK. The story is similar in other jurisdictions. For example, Australia has permanently lowered the monetary threshold to A$0 for mandatory screening of sensitive national security projects. While governments continue to show desire for inbound investment, it is plain that they will put in place, tighten as necessary, and enforce rules aimed at scrutinising such investment. Particularly where they are not out of step with international peers, the risk of being perceived as an outlier and disincentivising investment is greatly reduced.
“What is remarkable is that, although there continues to be an increase in the scrutiny of foreign investment, including by the world’s largest economies, the same economies publicly still encourage inward investment.”
FW: In your opinion, what legal and regulatory issues are set to have the greatest impact on cross-border investment?
Kadel: I am keeping an eye on the prospect that a CFIUS-like process could be applied to outbound investment. This has been an element of various legislative proposals – most recently, the proposal was to create a new Committee on National Critical Capabilities, which would review certain transactions by US businesses that have to potential to shift what are considered critical national capabilities to a ‘country of concern’ or ‘entity of concern’. If such a proposal were to be enacted and implemented, this truly could have major implications for US outbound investment. I am also looking at how national security foreign investment regimes in countries other than the US develop and evolve over time.
Lee: CFIUS is, of course, the biggest legal and regulatory hurdle in the US in terms of foreign investment and has the greatest impact on cross-border investment into the US. With the recent expansion of CFIUS jurisdiction, literally every acquisition or investment by a foreign company regarding a US company must be analysed to determine whether there is a mandatory CFIUS filing or whether a voluntary filing is advisable. This necessarily involves time and expense. But even apart from CFIUS itself, there are many other issues, including export controls, economic sanctions, the new Information and Communications Technology and Services (ICTS) regime and other agencies within the US government that have jurisdiction over these types of investments. And now that we are seeing even more countries adopt FDI regimes, it is becoming more complex when dealing with potentially a number of different jurisdictions looking at the same transaction.
Peacock: In our experience, investors are most concerned about a lack of predictability. While M&A-savvy investors do not mind the time and effort that need to be invested into regulatory reviews, they want to know early on in order to build this into their transaction timetable and cost estimates. Hence, the more uncertainty, for instance about the application of FDI thresholds or the duration of procedures, the less attractive a jurisdiction is for foreign investors. It should be noted that the scrutiny of FDI for national security concerns plays a pivotal role, but it is important to look at the broader legal and regulatory landscape. Other regulatory hurdles such as merger control, specific legislation dealing with large tech-businesses as proposed in the US or the Digital Markets Act (DMA) and the Foreign Subsidy Proposal in the European Union, make it more difficult to predict the outcome of global transactions.
Kaniecki: Continuous amendments to existing FDI regimes and the implementation of entirely new FDI regimes, particularly those involving broad jurisdictional powers and mandatory filing requirements, will have the greatest impact on cross-border investment. Revamped or new FDI regimes will not only impact the timing of deals but also deal certainty. Thus, parties will need to negotiate what, if any, mitigation measures and associated costs they are willing to accept at the outset of a transaction, and the risk or likelihood of mitigation will need to be taken into account as early in the due diligence process as possible. Parties will also need to consider how FDI filing and notification requirements interact with, or exist in parallel to, other regulatory requirements, such as global merger control filing and notification requirements. In addition, US legislators are currently considering the implementation of an outbound investment screening regime to prevent the offshoring of technology and capabilities critical to US national security. If implemented, we expect that such a regime would have a significant impact on cross-border investments, with other nations potentially implementing similar outbound investment review regimes shortly thereafter.
Mancuso: It is clear that the war in Ukraine will continue to have an impact on cross-border investment, as economic sanctions and export restrictions targeting Russia continue to grow. In the US, a potential outbound investment screening regime may have significant impacts on cross-border investment by requiring filings for many investments by US persons and their portfolio companies in countries deemed to be ‘of concern’, including China. We have also seen CFIUS become very interested in small venture capital transactions involving de minimis equity stakes but requiring technology transfer from the US to Chinese parties, including with respect to investments made years ago into start-ups that have now become larger and more sophisticated companies. This scrutiny is likely to have more of an impact on tech-related investment into the US.
FW: Drilling down, what insights would you offer on issues such as merger review and national security concerns? How would you describe the recent monitoring and enforcement efforts of authorities?
Peacock: Globally, we are observing increasingly interventionist approaches from merger control agencies, and that can be expected to continue. There is also an increasing number of cases where agencies take different views of the same transaction, which underlines the need for a global strategy to securing clearances. We also note a similar trend in many jurisdictions which introduce FDI screenings: while in the early stages after implementation filings may appear more of a formality, once the regimes become more experienced with their reviews they are less hesitant to impose remedies or even block deals. In the UK, in-depth reviews have been publicly announced for a Chinese-backed acquisition of a semiconductor factory and a French-backed minority investment in British Telecoms by Altice. Neither of those required a mandatory notification and were therefore ‘called-in’ by the government. The UK government has also already blocked one deal in the first seven months of its new regime, signalling already a possible trend toward robust enforcement. Italy has also used its ‘golden powers’ several times already to block Chinese investments, as has Germany, where it has become standard for the government to demand concessions from parties that address, for instance, security of supply concerns of public customers or concerns about a loss of critical intellectual property to the acquirer.
Kaniecki: Cross-border transactions are beset with more uncertainty and potential for delay than ever before. This escalation in uncertainty is driven by two overlapping trends, one within global competition monitoring and enforcement and the other stemming from FDI monitoring and enforcement. Within competition enforcement, so-called ‘voluntary’ regimes are becoming increasingly aggressive in ‘calling in’ transactions based on speculative theories of harm. At the same time, a significant number of major jurisdictions have established, or have significantly expanded, pre-existing global FDI review regimes that scrutinise the nature and substance of a target company’s business and the identity and nationality of the foreign investor. This empowers governments, in some cases, to block or restrict cross-border transactions when these considerations conflict with often vaguely defined national security, national interest or other strategic concerns. FDI authorities, particularly CFIUS, are becoming increasingly active in identifying so-called non-notified transactions and calling such transactions in for review.
Mancuso: Monitoring and enforcement efforts are growing. In the US, CFIUS is actively reaching out on non-notified transactions, including transactions that closed over five years ago or which are de minimis in value, less than $250,000. The risk of enforcement can be particularly high when a company is going public, either via an initial public offering (IPO) or de-special purpose acquisition company (SPAC), because the process requires public disclosure of ownership in securities filings and national security regulators actively monitor these filings. It is likely that this trend is going to continue, because transactions that appear to be ‘low’ in value for dealmakers are often not perceived that way by regulators. Moreover, as coordination and cooperation between countries’ investment security regulators increases, I expect that monitoring and enforcement efforts will increase as a natural result: a non-notified transaction surfaced by regulators in one country will be referred to, and addressed by, regulators in a partner or allied country.
Lee: In its very first public conference this past spring, CFIUS officials stressed that the committee will increase its monitoring of ‘non-notified transactions’ and enforcement of mitigation agreements that transaction parties have entered into in order to gain CFIUS clearance. CFIUS officials also notified the public to expect an increase in the amount of site visits in the future, now that COVID-19 restrictions are being lifted. We are seeing an increasing amount of outreach from CFIUS on non-notified transactions, and we advise companies to take these very seriously and try to provide all the information requested by CFIUS in order to avoid a request for a notice filing. One frustrating aspect of these non-notified transaction cases is that CFIUS will not provide the parties with any definitive ‘conclusion’ or finding if it decides not to pursue a notice. Parties just have to await the cessation of questions from the committee in order to infer that the interest by the committee in the transaction has been satisfied. In terms of CFIUS’s enforcement of mitigation agreements, this is still in its early stages. To date, only two public notices of violation have been published by CFIUS, and for confidentiality reasons there was very little detail given in these notices about the parties or the violations.
Kadel: It is critical for the national security and competition teams to be coordinated. As the number of filings needed in a cross-border deal multiplies, ensuring consistency in strategy and in the quality of the information about the deal and the deal parties delivered to the various authorities becomes more challenging. But it is so important to do it correctly. One element of increased monitoring and enforcement efforts that goes under the radar somewhat is the need to consider the potential impact of failure to file prior investments when making an investment in a company. If there are investors from countries that are likely to be deemed sensitive in the capital structure, and the investment by those parties was not reviewed, the new investor needs to consider the implications of a potential review on valuation and on the prospects of the company going forward. Post-closing reviews initiated after the fact – sometimes many years after the fact – can give rise to a significant overhang of uncertainty, and ultimately may require the company to take steps to mitigate security risks in a way that could restrict the company’s ability to operate as it might otherwise prefer.
“Because of recent changes in the law, some CFIUS filings are now mandatory, and failure to file can result in significant penalties and threaten CFIUS notice of even pre-existing US investments.”
FW: What advice would you give to foreign investors considering investment opportunities? What steps should they take to manage the process, and assess the risks involved?
Lee: It is critical that CFIUS issues be considered and analysed at the very beginning stages of reviewing an investment opportunity. Because of recent changes in the law, some CFIUS filings are now mandatory, and failure to file can result in significant penalties and threaten CFIUS notice of even pre-existing US investments. Whether CFIUS is mandatory or voluntary, CFIUS will have a significant impact on both the timing and costs of the deal. And for those transactions where the parties decide not to do a voluntary filing, consideration should be made as to how to respond to an inquiry from CFIUS on a non-notified transaction.
Mancuso: It is critical to assess the national security profile of a proposed target as early as possible in the transaction process – this can be a gating issue for a transaction. Moreover, foreign investors should take a hard look at their own national security risk profiles. For example, companies should assess how a sceptical regulator might view their formal and informal relationships with Chinese and Russian entities, and the extent to which regulators might view such relationships as potential vectors for risk, based on potential leakage of sensitive technology and information. Private equity sponsors should similarly be prepared to disclose and discuss their relationships with limited partners from countries perceived to present higher risks; many regimes require disclosure of all government-affiliated investors in national security filings, with no de minimis thresholds.
Kaniecki: Foreign investors should keep a few things in mind. First, a jurisdiction’s FDI review regime can apply even if the target company does not have a subsidiary, but simply some presence or activity, within the jurisdiction. Second, many FDI review regimes, some of which are mandatory, focus on similar kinds of transactions raising national security or national interest-related concerns. However, there are not uniform definitions of these concepts across jurisdictions. The definitions that do exist populate a spectrum ranging from the very specific to the very opaque. For example, some FDI review regimes focus specifically on traditional areas of national security, such as activities related to defence, intelligence and law enforcement, while other FDI review regimes capture activities related to media, education, agriculture or cultural activities in their definitions of protected ‘national interests’. Finally, filing and review timelines vary dramatically across FDI review regimes. Some filings must be made pre-closing, while other filings can be made post-closing. Under some FDI review regimes, parties are not permitted to close a transaction until the relevant government approval is obtained.
Kadel: The best advice to a foreign investor is to be proactive. Assess where there could be national security concerns associated with an investment and identify ways to mitigate those concerns. Sometimes, it may be possible to mitigate concerns with a careful presentation of the investor, the investment terms and the motivations for the investment. At other times, structural remedies or business commitments may be necessary. It is always better to spend the time thinking these issues through to the best of the investor’s ability.
Peacock: FDI will remain an important feature of the global economy. Investors and would-be acquirers need to be prepared and well advised before embarking on M&A activity. That means understanding the various regimes which could be triggered as a result of a transaction and undertaking appropriate due diligence to interrogate any substantive risk that might result in serious scrutiny. It is increasingly important to be prepared from the outset, which requires a sound understanding in particular of the target’s technology, customers and any unique factors that could draw the government’s attention. It will also be necessary to engage with key stakeholders at an early stage, including relevant government contacts and departments. This will be essential to avoid entering into a screening or review process completely cold. Transparency about the investor and its motives for the deal need to be clearly conveyed to build trust with the competent authority’s case-team and its hierarchy. It is also important to think about how the risks of government intervention are to be apportioned between the parties involved through contractual provisions.
“US legislators are currently considering the implementation of an outbound investment screening regime to prevent the offshoring of technology and capabilities critical to US national security.”
FW: Looking ahead, what are your predictions for foreign investment activity over the coming months? To what extent is the direction of merger control likely to curtail cross-border transactions?
Mancuso: Barring a global economic slowdown, I anticipate that foreign investment activity will continue. However, scrutiny of cross-border investments will continue and grow more sophisticated, as regulators learn how to identify and address risks arising from particular transactions of concern. As dealmakers become more familiar with new cross-border investment regulations, they will likely be more comfortable with making any filings that are required or advisable for specific transactions. Sellers will likely also become more comfortable with making filings as buyers are able to demonstrate a consistent positive track record in clearing transactions with national security regulators. Over time, these experiences will make future reviews go more smoothly, with more predictable results. Companies seeking new funding will also have more data points to be able to evaluate and compare potential funding sources’ national security profiles and make decisions on new investment partners.
Kaniecki: FDI review regimes have matured and become a significant regulatory issue for most cross-border transactions. Although frequently grouped with global merger control review, FDI analysis now exists as a standalone, parallel process that can independently complicate, and, in some cases, threaten, deal considerations. There is every indication that the global FDI review landscape will continue to be active and evolve going forward, with key jurisdictions continuing to reform and expand their FDI review regimes and actively using their authorities to scrutinise, and in some cases ultimately prevent, transactions they deem objectionable. Parties to cross-border transactions need to be aligned not only on process, including the due diligence and analysis investment each party is willing to make, but also, and perhaps even more importantly, in their strategic perspectives and risk tolerances when filing or notification decisions are, as they increasingly tend to be, more art than science.
Kadel: It is always hard to predict trends in foreign investment with any authority, as a variety of external factors could come to bear and change conditions significantly. At this moment, and under the current and currently expected future conditions, I would predict that 2022 will see a significant amount of foreign investment transactions. These transactions may be more complicated to complete in light of national security review regimes and in light of competition reviews across a wide range of jurisdictions, but I do not see these potential complications dampening the desire to engage in transactional activity. It seems likely that the nature of cross-border transactions will to some extent reflect geopolitical tensions on the world stage. I have seen studies indicating that the share of cross-border deals among investors and targets in closely affiliated countries has increased as a share of the overall number of cross-border transactions, which certainly makes sense in the current climate. And I believe that technology sector investment will continue to be a driver of overall cross-border investment activity.
Peacock: The war in Ukraine and the cost of living crisis are likely to have an ongoing impact on the global economy. At the same time, China’s global economic strategy has not changed and will only drive investment to those jurisdictions where hurdles seem less cumbersome. That said, we still see Chinese investments in European technology companies that receive unconditional clearance after an in-depth review. It is also difficult to crystal ball gaze, particularly where there are myriad factors which businesses take into account when making investment decisions. It is clear that there will continue to be pent up supply and demand following the COVID-19 pandemic. However, with an international and complex patchwork of rules and regulations that will need to be navigated, investors will naturally be more cautious on where to invest. They will want to understand the risks of investing in a given jurisdiction, and also what the cost and potential regulatory objections might be to closing a deal successfully.
Lee: We expect ‘greenfield’ investment – which in many cases is not subject to CFIUS jurisdiction – to continue to grow over the coming months. This is one ‘bright spot’ in the FDI sector, maybe precisely because it can avoid CFIUS review. We are also expecting an increasing analysis of pure real estate transactions given the new CFIUS jurisdiction over those types of transactions in the Foreign Investment Risk Review Modernization Act (FIRRMA). We are also looking for increased activity in the life sciences, pharmaceuticals and biotech sectors, partly as a result of new vaccines and treatments for COVID-19 and, potentially, monkeypox. Investment in sectors ‘rebounding’ from pandemic lockdowns, including construction, real estate, tourism and entertainment, is also expected to increase.
Chase Kaniecki is a partner at Cleary Gottlieb Steen and Hamilton LLP in Washington, DC and leads the firm’s international trade and national security practice. Mr Kaniecki advises clients on international trade and national security issues and foreign direct investment matters, including CFIUS advice and filings, as well as ex-US FDI advice and filings. He can be contacted on +1 (202) 974 1792 or by email: ckaniecki@cgsh.com.
Judith Alison Lee is a partner in the Washington, DC office and co-chair of the firm’s international trade practice group. Ms Lee practices in the areas of international trade regulation, including USA Patriot Act compliance, Foreign Corrupt Practices Act, economic sanctions and embargoes, and export controls. She also advises on issues relating to virtual and digital currencies, blockchain technologies and distributed cryptoledgers. She can be contacted on +1 (202) 887 3591 or by email: jalee@gibsondunn.com.
Christopher Peacock is senior associate in Hogan Lovells’ London and Dublin offices. He has also spent time practising in Brussels and advises clients on international transactions requiring merger control clearances in the UK, EU and other jurisdictions around the world. He also routinely advises clients on the UK’s new National Security and Investment regime. He can be contacted on +44 (0)20 7296 5630 or by email: christopher.peacock@hoganlovells.com.
Mario Mancuso is a partner, and leads the international trade and national security practice, at Kirkland & Ellis LLP. A former senior member of the President’s national security team, Mr Mancuso provides strategic and legal advice to companies and private equity sponsors operating or investing across international borders. He is a leading adviser on matters involving the Committee on Foreign Investment in the United States (CFIUS) and other foreign investment clearance regimes. He can be contacted on +1 (202) 389 5070 or by email: mario.mancuso@kirkland.com.
Eric Kadel is engaged in a wide variety of corporate, transactional and regulatory matters. He is a member of the firm’s corporate and finance, financial services, investment management, cyber security and commodities, futures and derivatives groups. Mr Kadel regularly represents participants in capital markets transactions, and dealers and end users in connection with structuring and documenting a wide variety of swaps and other derivatives, including equity, credit default and commodity swaps, options and forwards. He can be contacted on +1 (202) 956 7640 or by email: kadelej@sullcrom.com.
© Financier Worldwide
THE PANELLISTS
Cleary Gottlieb Steen and Hamilton LLP
Gibson, Dunn & Crutcher LLP
Hogan Lovells International LLP
Kirkland & Ellis LLP
Sullivan & Cromwell LLP