In September 2017, the Committee on Foreign Investment in the United States (“CFIUS”)1 released its annual report to Congress detailing its activities in 2015. Data in the 2015 report, in addition to data CFIUS released for 20162 and Mayer Brown’s CFIUS experience in 2017, indicate a continued increase in activity for CFIUS in recent years, reflecting the government’s increased scrutiny of risks to US national security from foreign investment.
CFIUS reviewed 143 notices of covered transactions3 in 2015, virtually the same count as in 2014, when it reviewed 147 notices. However, these totals reflect a marked increase in activity compared to 2013, when CFIUS reviewed 97 notices, and 2012, when it reviewed 114. The figure was even higher in 2016, when CFIUS reviewed 172 notices. Through the third quarter of 2017, CFIUS is believed to have reviewed at least 165 notices.
Of the 143 notices it reviewed in 2015, CFIUS conducted a subsequent investigation of 66 notices, or 46 percent. This reflected an increase from 2014, when CFIUS conducted an investigation of just 35 percent of the notices it reviewed.
Additionally, in 2015 CFIUS approved the withdrawal of 13 notices—3 during the 30-day review phase and 10 during the subsequent 45-day investigation phase. This was a total of 9 percent of the notices received, roughly on par with the previous two years. However, the percentage of withdrawals was higher in 2016, when CFIUS approved 27 withdrawals, or about 16 percent of the total it received.
Mitigation Measures Applied
Mitigation agreements are legally binding instruments that require transaction parties to make divestments, make modifications to acquisition agreements or take other steps to address national security concerns. CFIUS concluded its action after mitigation measures were applied in 11 of the 143 transactions it reviewed in 2015, or almost 8 percent of transactions. The data were similar to that for 2014, when CFIUS applied the measures to 9 transactions, or 6 percent of those it reviewed. In 2013, the measures were applied to 11 covered transactions, or 11 percent of those reviewed.
In 2015, the primary sources of investment in covered transactions in notifications sent to CFIUS were China, Canada, the United Kingdom and Japan. China led the pack for the fourth consecutive year, representing acquirers in 29 of the 143 notices reviewed, or 20 percent of the total. The number of reviewed transactions with acquirers from China could also reflect a more careful approach by Chinese acquirers, submitting notices when acquirers from other countries might not have done so.
Transactions involving the manufacturing sector represented almost half of those reviewed by CFIUS (68 transactions, or 48 percent), with those from the finance, information and services sectors comprising another 42 transactions, or 29 percent.
Critical Technology M&A Identified
In 2015, CFIUS identified 130 foreign mergers or acquisitions of companies involved in critical technologies, including defense articles or services covered by the United States Munitions List; items specified on the Commerce Control List; nuclear equipment, technology and materials; and select agents and toxins. CFIUS agencies and the US Intelligence Community analyzed these transactions for indications of a coordinated strategy by foreign actors to acquire these technologies. As in recent years, the 2015 report also noted that “foreign governments are extremely likely to use a range of collection methods to obtain critical US technologies.”
The 2015 Annual Report demonstrates the US government’s sustained focus on examining the potential national security threats from foreign investment. Though complete information is not yet available for 2016 or for 2017 to date, practitioners before CFIUS have noticed that the number of transactions being reviewed, the duration of the CFIUS process, and the scrutiny of Chinese acquisitions all appear to be increasing. Understanding the CFIUS process, analyzing potential national security concerns and engaging CFIUS on those concerns are essential aspects of a cross-border acquisition of a US business. This is especially the case when the transaction involves a critical sector of the US economy or a country with which the US has a sensitive relationship.
1 CFIUS is an inter-agency US government body, chaired by the Department of the Treasury, which reviews notified transactions covered by the Foreign Investment and National Security Act of 2007 (FINSA).