Government scrutiny of certain inbound US investments, including acquisitions of American businesses, is likely to increase in the months ahead, leading dealmakers to reassess growth strategies and M&A decisions.
To date, deals by non-US acquirers of US companies have been submitted to the Committee on Foreign Investment in the US (CFIUS) at the deal parties’ discretion, and CFIUS can block deals and investments deemed to pose national security threats. CFIUS review may be mandatory in cases when a foreign government has a substantial interest or investments involve critical technology, critical infrastructure or data on large numbers of US citizens. While most CFIUS reviews remain voluntary, the possibility of a mandatory review adds significant potential uncertainty and liability on transactions with partners in rival countries.
What’s changed? As Craig Stronberg of our PwC Intelligence group explained in Policy on Demand, a new US Treasury Department team is searching for inbound deals — proposed and completed — that might pose a risk to national security. The team is now fully staffed and has been operating at high speed for most of the past year. Just as importantly, other units have been established at other US departments, including Commerce, Justice and Defense. Scores of new, full-time government analysts are now on the hunt for inbound deals skipping the CFIUS process.
How will it work? The team will have access to substantial data about inbound deals and use three types of data to identify transactions that potentially should have been submitted for CFIUS review.
What should I do? With foreign direct investment still important to the US economy, we don’t expect the new Treasury team to use a heavy hand. But even a balanced approach aimed at maintaining investment while ensuring national security will require adjustments. Dealmakers need to understand that renewed foreign economic competition increases the need to align business interests with national interests, as foreign direct investment from systemic rivals will now be scrutinized to protect US economic security.