A foreign acquisition of a U.S. business can face government review when the transaction creates a potential national security risk. CFIUS, the federal committee that reviews certain foreign investments, can impose conditions on a deal or refer it to the President when those risks cannot otherwise be resolved. Here are four factors that can bring a transaction under closer review.
The acquisition gives a foreign investor control of a U.S. business
The level of control matters because CFIUS is concerned with what a foreign investor could do after the transaction closes. It can consider voting rights, board representation, the ability to appoint senior management and other rights that give the investor substantial influence over the business. A transaction can therefore raise CFIUS concerns even when the foreign investor does not own more than half of the company.
The U.S. business involves sensitive technology or data
The nature of the U.S. business can also affect the government’s interest in the transaction. CFIUS gives additional attention to certain critical technologies and businesses that maintain large amounts of sensitive personal data because foreign access could create national security risks.
The transaction could affect critical infrastructure
The government’s concern can extend to the systems and services a U.S. business supports. CFIUS can review certain investments involving businesses that perform specific functions related to covered critical infrastructure, particularly where foreign control could affect essential U.S. operations.
The foreign investor raises national security concerns
The buyer itself can also become part of the government’s assessment. CFIUS can examine the investor’s ownership and relationships, including substantial interests held by foreign governments. That’s especially true when those connections could create concerns about foreign influence over the U.S. business.
Assess CFIUS risk before signing the deal
If your transaction could fall within CFIUS’s jurisdiction, address that issue before you commit to the deal. Early review can help you account for potential conditions or other regulatory requirements during negotiations rather than discovering them after the deal is underway. Knowing the risks early gives you more room to structure the deal around them.