Improving the National Security and Investment Act

Last month, the Corporate Finance Faculty responded to the UK government’s consultation, Call for Evidence – National Security and Investment Act (NSIA), on behalf of ICAEW and the faculty’s members.

Set up in November 2023, the government consultation requested stakeholder feedback on the NSIA, which came into law at the start of 2022. The consultation included certain questions, the responses to which would be used to update market guidance.

The faculty response first noted that the NSIA requirements had extended the timelines for businesses completing strategic acquisitions or disposals and arranging finance, if need be. As a result, the cost of advice increased and in some cases M&A strategy was affected, with asset sales possibly favoured over share sales. The faculty also suggested greater clarity was needed regarding the scope of the NSIA for transactions that are not effected in the UK.

Key points

• More pre-notification guidance for businesses, and that guidance should be given more quickly so as not to delay processes. Such guidance might be more related to drafting submissions, or around interpretation of the guidance.
• Compared with “long-established regulators, the Investment Security Unit (ISU) is slow to react”. A dedicated communication channel for preliminary assistance would help businesses by reducing the number of rejected notifications. By identifying common queries, the ISU can update its guidance.
• When financing needs to be secured or there is a competitive process, time is critical for an M&A processes. As well as the response time commitment for notifications through the portal, there should be a commitment for email responses from the ISU (48-72 hours) to help businesses.
• The ‘hub and spoke’ approach adopted by the ISU would be greatly enhanced by having sector/industry knowledge leads within the unit, developing knowledge pools.
• There should be further guidance for members on outward direct investment deals, security instruments and reorganisations and restructurings. Illustrative examples would help.
• There should be more transparency about how the ISU works, so that businesses can observe consistency. One particular concern is how the ISU prioritises notifications.
• More information on how the review process works should boost the quality of submissions. Consistency could be improved by giving reasons why a notification has been rejected. This should speed up the process and reduce the number of notifications that are rejected not for security concerns, but because of administrative errors that could be eliminated by better guidance.

In November, ICAEW head of corporate finance David Petrie and ICAEW capital markets senior manager Katerina Joannou hosted online consultations with member firms to inform the response. Petrie then presented the practical recommendations at a meeting of the NSIA 2021 Expert Panel chaired by Nusrat Ghani MP, Minister for Industry and Economic Security, the minister responsible for the ISU.

“The minister welcomed our proposals and undertook to progress each of our suggestions, which included combining the mandatory and voluntary notification regime, as well as certain adjustments to both the notification process and trigger events,” said Petrie.

Future finance meeting

In December 2023, ICAEW head of corporate finance David Petrie represented ICAEW at a round-table meeting of CEOs and representatives from the UK’s major business groups at the British Business Bank. Stephen Welton CBE, who was appointed chair of the British Business Bank in October 2023, chaired the meeting. He announced the launch of an asset-based lending variant of the Recovery Loan Scheme (RLS), which joins the existing term loan, revolving credit facility, invoice finance and asset finance variants.

By 30 September 2023, businesses had drawn more than 20,000 facilities, worth £4.3bn, through the first two iterations of the RLS. The third iteration of the RLS was launched in August 2022 and continues to support access to finance for UK businesses.

“The RLS was launched in April 2021 and supported UK businesses looking to recover following the COVID-19 pandemic,” said Petrie. “It provides more than £1bn per annum and the current scheme is currently due to end in June. The bank welcomes our input ahead of that date and so members’ thoughts on this would be welcomed by the faculty.” 

New year, new deals

The Corporate Finance Faculty held its first event of the year last month – the Prospecting For Deals in 2024 webinar. Chaired by head of corporate finance, David Petrie, it featured presentations by Jari Stehn, head of European Economics for Goldman Sachs Research, and Russell Enright, senior director at Intralinks, followed by a panel discussion with Aylesh Patel, partner and head of the south at LDC; Giles Distin, corporate finance partner at Addleshaw Goddard; Gurm Dhillon, UK M&A leader at Deloitte; and Jo Davenport, transaction services partner at BDO.

Stehn said the bank expected interest rates in Europe and the US would “fall quite significantly” this year, changing the macroeconomic backdrop: “There are some early signs that credit flow is improving again.” He said he expected the buyer-seller price expectation gap would continue to narrow, but didn’t expect M&A processes to speed up until there was more competition on deals.

Enright warned about a stricter regulatory environment. He also expects to see AI as an increasing presence in deal sourcing, and a greater need for cyber security in general and in deals.

Jo Davenport

“Manufacturing and the consumer sector have faced the biggest challenges, which won’t go away overnight, but we see renewed confidence. Hopefully there will be a steady flow of deals and that can only improve once capital markets reopen, potentially towards the end of this year. Recently we’ve looked at multiples of forward-looking EBITDA. We’re back to looking at historic metrics, which certainly makes due diligence easier.”

Aylesh Patel

“Coming off the back of last year, our Q1 pipeline is pretty strong. There’s a general sense of positivity. Interest rates coming down should unlock debt markets, which will allow valuations to be unlocked, and enable more transactions. Technology, healthcare and tech-assisted business services have been predominant areas of our focus, but we are starting to see more coming through from e-commerce and consumer-led businesses.”

Gurm Dhillon 

“Companies are leaning towards more defensive balance sheets – cost control, cash optimisation, lower capex and M&A. But non-core disposals will continue. For those with cash-rich balance sheets, there will be pressure to deploy cash to meet strategic aims. We’ve seen signs of activism driving M&A. On the private equity side there is an appetite for deals. There’s lots of dry powder. Debt is available – it’s just more expensive. But what is key is the price gap narrowing. If 2023 was a year of portfolio optimisations, I think 2024 will be a year of realising portfolios.”

Giles Distin

“For IPOs, it really was a quiet year worldwide, particularly in the UK. But if inflation comes under control and interest rates come down as predicted, equity markets in the UK might start to perform better – more likely in the second half. Lots of IPOs have been parked, but are ready or nearly ready to go. Fund managers are still seeing net cash outflows; that trend needs to reverse so we have fund managers with money to deploy.”

In brief

• The Corporate Finance Faculty is hosting the first of a series of networking events for corporate financiers who are developing their career in M&A, or ACAs looking to begin a career in transactions. Building a Career in Corporate Finance and Investments will be held at the One Moorgate Place Club at Chartered Accountants’ Hall on the evening of 27 March. There will be informal drinks and a speaker covering topics including guidance for those building their career either as an adviser or investor, and strategies for professional growth in corporate finance. Places can be booked here.

• At the end of last year, membership of the Corporate Finance Faculty had grown to 9,596 members, up by 2,310 on the total at the end of 2022, due in part to the undertaking of an exercise to identify all members who were part of a corporate scheme, which totalled 6,646 at the end of 2023. There were 1,371 members as part of a reciprocal arrangement, 1,199 individual paying members and 380 student members.

• A digital marker is now attached to Corporate Financier, so that reading articles in the online version of the magazine will count towards verifiable continuing professional development (CPD), under the new methods for recording CPD. ICAEW’s guidance on the new system can be found here.

• The Corporate Finance Faculty’s AGM will now be held on 20 June 2024, and not 24 May 2024 as previously stated. It will still be held at Chartered Accountants’ Hall from 12:30-14:00. Booking details will follow.

• The Financial Conduct Authority has released its second ‘Primary Market Effectiveness’ consultation on the proposed new listing regime. Submit your views by 16 February on the first section and 12 March for the remainder. See the FCA consultation paper.