In recent years, the Committee on Foreign Investment in the United States (CFIUS) has acted to thwart or constrain various foreign investments in U.S. businesses. However, other similar investments have been permitted to proceed without significant interference from CFIUS. Below we discuss practice tips, based on lessons learned from past deals, to help investors successfully navigate these risks and obtain clearance from CFIUS.
As background, CFIUS is an interagency committee that reviews the national security implications of a wide range of foreign acquisitions and investments in U.S. businesses. Specifically, CFIUS has jurisdiction to review “covered transactions” that result in a foreign person’s control of a U.S. business. CFIUS has the authority to review, block and unwind transactions, either prior to or after closing that threaten to impair the national security of the United States.
With that in mind, investors that assess CFIUS risks at the outset of a contemplated transaction and take appropriate measures are best positioned to successfully complete their deals. We provide the following practice tips for cases that raise potential national security concerns:
(1) Integrate CFIUS into the Investment Strategy: At the outset of a transaction, investors should consider whether the deal has any possible national security implications that might trigger CFIUS review. Investments that involve any of the following have been viewed as potentially implicating national security concerns: classified programs, critical technology (e.g., telecommunications, aerospace and military technology), government contracts, critical infrastructure (e.g., energy and transportation), facilities located near sensitive government bases and foreign government-owned entities. If possible, investors may need to consider altering the transaction structure, ownership interests and/or operational roles to minimize perceived national security risks.
(2) Assemble the CFIUS Team: A well-rounded CFIUS team should include not only regulatory lawyers for the CFIUS process, but, in appropriate cases, also lobbyists, to engage with Congress and state/local groups, and public relations experts to manage the media. These consultants should work together to prepare an integrated legal, political and media strategy targeting both potential supporters and opponents of the transaction and be prepared for a quick response to any CFIUS concerns that may arise.
(3) Define and Deliver the Message: Prior to filing the voluntary notice, investors should thoroughly assess the CFIUS requirements and the related political issues that could arise in Congress, as well as state and local governments. The parties should define the message for the transaction that explains the business rationale, and they should also prepare a political and media strategy before the deal is announced.
(4) Assess the Political Dynamics: Prior to filing the voluntary notice, investors should build local, state and congressional support for the transaction. It is also important to anticipate possible criticism and develop a strategy with which to respond.
(5) Prepare an Acceptable Mitigation Strategy: Investors should discuss possible mitigation measures that might be acceptable to both parties before CFIUS compels them to do so. Advance discussion and preparation can help avoid situations in which parties are pressed to accept unfavorable mitigation measures under extreme time pressure at the end of the CFIUS review.
(6) Engage in the CFIUS Prefiling Process: Investors should engage CFIUS in prefiling consultations about the proposed transaction. They should prepare overview presentations and other related materials that describe the proposed transaction and the parties involved to familiarize CFIUS with the transaction prior to filing. As a best practice, they should submit a draft notice to CFIUS for preliminary review.
(7) Be Proactive with the CFIUS Voluntary Notice: Investors should draft and submit a robust, voluntary notice to CFIUS that addresses any potential national security concerns. The parties should also be prepared to quickly respond to follow-up requests from CFIUS and other U.S. government agencies that must be addressed typically within three days.
(8) Work with CFIUS on an Acceptable Mitigation Agreement: If CFIUS requires a mitigation agreement, the parties should be prepared to assess the impact of these requirements on business operations and communicate any burdensome constraints to CFIUS. It is also helpful to identify proposed solutions that address CFIUS’s concerns.
Taking these factors into account can mean the difference between a transaction that clears CFIUS and one that encounters obstacles or outright opposition.