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New heights: US M&A H1 2021
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CFIUS set to continue careful scrutiny under Biden Administration

President Joe Biden's approach to the national security risks posed by foreign-backed M&A may differ in style from his predecessor, but not in substance

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Under the Biden administration, the Committee on Foreign Investment in the United States (CFIUS), an interagency committee authorized to review certain transactions involving foreign investment into the US, is expected to operate in a more traditional manner, but with no less rigor.

In the lead-up to the 2020 Presidential election, CFIUS's work was highly publicized amid ongoing trade tensions, particularly with China. Under Biden, the agency has kept a lower profile but remains an essential policy tool for the White House and a key pillar of its strategy to protect US supply chains and mitigate any security risks posed by foreign ownership of critical infrastructure, technology, data and defense capability.

 

A wider scope

The concept of what is relevant to national security remains broad, and CFIUS's focus in recent years has included deals involving semiconductors, finance, cybersecurity, software, healthcare and social media alongside its traditional interest in defense, technology, and critical infrastructure.

CFIUS reviews are expected to be more process-driven and less politically overt under Biden, but the intensity and scrutiny of reviews are proving to be very much in line with what dealmakers have observed in recent years.

CFIUS has bipartisan support and since the enactment of the Foreign Investment Risk Review Modernization Act of 2018, CFIUS has been given additional jurisdiction to review certain non-controlling investments and real estate transactions. Some deals trigger mandatory filings, and, backed by additional resources, CFIUS has grown increasingly aggressive in identifying and reviewing non-notified transactions of interest.

CFIUS's non-notified efforts have included a notable determination to call in deals for review retrospectively, including ones that closed years ago. In some cases, CFIUS objections have led to divestments of assets post-deal on national security grounds, such as Beijing Shiji divesting US hotel software company StayNTouch and China's iCarbonX selling its majority ownership in online healthcare discussion network PatientsLikeMe.

CFIUS officials have reported that the Committee called in more non-notified deals in 2020 than in 2018 and 2019 combined, with 2021 on pace for a 50 percent increase over 2020.

Between CFIUS's increased jurisdictional authority and the aggressive pursuit of non-notified transactions, the equation for whether to voluntarily notify CFIUS ahead of a foreign-backed deal has changed, especially with the Committee deploying additional resources to examine even long-closed transactions.

 

Life on the fast track

Although CFIUS is looking at more deals than in the past and CFIUS scrutiny of sensitive transactions remains high, the process can be effectively navigated with the right preparation.

Unlike FDI oversight regimes in other parts of the world, CFIUS timelines are mandated by statute, which allows parties to build the required time into their timetables.

The CFIUS review process now also offers a fee-free, fast-track review process known as a declaration, which is a short-form filing assessed in 30 days. Complex deals involving countries and sectors deemed to be higher risk are unlikely to benefit from the fast-track process, but for deals less likely to pose national security concerns, the declaration process can be useful. Following a review, CFIUS can clear the transaction; issue a so-called "shrug", meaning the deal is not cleared (and therefore not granted safe harbor) but does not require a full review; or request a full notice.

The most recent figures show that full reviews happen in less than a quarter of cases, indicating parties and CFIUS are generally using the declaration process effectively.

Given mandatory filing requirements, expanded CFIUS jurisdiction and CFIUS's aggressive pursuit of non-notified transactions, CFIUS issues must be considered early in any cross-border deal involving a US business or assets to ensure they are managed properly.

 

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New heights: US M&A H1 2021

 

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