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ANALYSIS: The Latest CFIUS Report to Congress, Visualized

Aug. 12, 2022, 9:00 AM

A historic year in M&A was also a record year for the Committee on Foreign Investment in the US (CFIUS), the Committee’s latest annual report to Congress reveals.

CFIUS’s official data covering calendar year 2021—the first full calendar year when CFIUS reforms brought by the significant 2018 FIRRMA legislation were in full effect—were made public earlier this month, and they show that, as predicted, both the number of notices and the number of short-form declarations filed reached a record high last year.

But not all the numbers were up in 2021. Notably, it was the first year since 2015 during which there was no presidential decision on a transaction reviewed by CFIUS. (It feels like ages ago, but remember the proposed acquisition of Musical.ly by ByteDance Ltd.?!)

Notices Leading to Investigations

Another area that wouldn’t set a record high was the proportion of notified transactions resulting in investigations.

Although the total number of investigations of notified transactions was the highest since 2018, taken as a percentage of notices filed, the committee investigated 47.8% of notified transactions in 2021. This was a slightly higher proportion than seen in 2020 (47%), but it was lower than 2019 (48.9%), and much lower than 2018 (68.9%) and 2017 (72.5%)—which were both pre-FIRRMA years.

In its annual report to Congress for 2019, the committee highlighted the decline in the proportion of notified transactions resulting in investigations seen that year. The committee attributed that result to the extension of the review period for notices from 30 days to 45 days under FIRRMA.

2021’s result can be viewed as being in line with overall lower post-FIRRMA investigation rates for notified transactions, and given the comments included in prior reports, is likely to be viewed by the committee as a reflection of the continued positive impacts of the recent reforms.

Notices

Last year, CFIUS conducted a review of 272 notified covered transactions. Of these notices, 130 resulted in investigations, which, as noted above, represented 47.8% of notices filed. Seventy-four of these notices were withdrawn, of which 63 resulted in new notices being filed by the transaction parties.

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Nine withdrawn transactions were ultimately abandoned by the parties “after either CFIUS informed the parties that it was unable to identify mitigation measures that would resolve its national security concerns, or it proposed mitigation measures that the parties chose not to accept,” according to the report. Seven such transactions were abandoned in 2020, and eight were abandoned in 2019.

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The number of notices filed in 2021 marks a 45% increase over 2020’s total (187), and is the highest annual total reflected in these reports, which go back to 2008.

Declarations

Short-form declarations were introduced as a filing option through FIRRMA, and are arguably the star of the 2021 report.

These short filings, which are typically around five pages in length, are filed through the online CFIUS Case Management System and have surged in popularity since becoming an option. In 2021, 164 short-form declarations were filed, the highest annual total yet. In 2020, 126 short-form declarations were filed; it was in February of that year that the regulations implementing FIRRMA became effective, making short-form declarations officially a voluntary filing option for certain categories of deals and mandatory for other subsets of transactions.

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Of the declarations filed in 2021, 47 had been filed subject to mandatory filing requirements; 30 resulted in the committee requesting that the parties file a written notice; and 12 resulted in the committee stating that it was “unable to conclude action.” However, over 70% (120) resulted in the committee stating that it had “concluded all action.”

Two declarations were rejected, one of which resulted in the parties refiling in the form of notice.

Turnaround Times

The report notes that despite ongoing challenges stemming from the pandemic, the committee met its time obligations with respect to accepting notices and providing comments.

For draft notices filed, the average time from the date of submission to the committee providing written comments was 6.2 business days. And the committee accepted formal written notices on average within 6.0 business days of filing. Both were well within the allowed 10-day period.

In 2021, reviews for notified transactions took an average of 46.3 calendar days to complete, and investigations took an average of 65 days to complete. The allowed time for reviews is 45 calendar days, with up to 45 additional days for an investigation if the committee requires additional time to complete an assessment following review.

For short-form declarations (as would be expected), the committee’s turnaround time was very fast: The average time from filing a declaration to acceptance by the committee was 5.5 calendar days. And the committee took an average of 29.9 days to complete reviews and investigations for covered declarations—just within the statutorily allowed 30-day period.

Acquirer Countries

By acquirer country, China was the top filer of notices in 2021, and Canada was the top filer of short-form declarations. Canada came in second place for notices filed, while four countries tied for second place for declarations filed.

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Mitigation Measures

CFIUS concluded action after adopting mitigation measures with respect to 26 of the 272 notices filed in 2021, according to the report.

Like past reports, the current one provides a helpful list of examples of the types of mitigation measures that were adopted. The 2021 list is substantively very similar to the 2020 list, but there were some new additions. These include the establishment of a “voting trust,” in addition to corporate security committees and other mechanisms that the 2021 report said were intended “to limit foreign influence and ensure compliance.”

Note: The 2021 report, like prior reports, contains extensive information regarding the business sectors of the US companies involved in reviewed transactions, by North American Industry Classification System (NAICs) codes. Industries were not discussed in this analysis.

With assistance from Linda Ouyang.

Bloomberg Law subscribers can find related content on our In Focus: CFIUS resource.

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