CFIUS Annual Report: Investigations and Mitigation Agreements Return to Historic Rates Despite Growing Caseload
The Committee on Foreign Investment in the United States ("CFIUS") periodically publishes the unclassified portion of its Annual Report to Congress, which, among other things, highlights key statistics regarding the types and number of transactions submitted to CFIUS for review. In the recently released report covering calendar year 2014 (the "2014 Report"), the data generally reflects a continuing upward trend in the total number of notices filed. However, following a significant uptick in 2013, the percentage of cases undergoing the 45-day investigation period or requiring mitigation during 2014 returned to historic norms.
In 2014, CFIUS received 147 notices of covered transactions, a 52 percent increase from 2013 (a year partly affected by the government's shutdown in October) and a 29 percent increase from 2012. CFIUS did not identify any discernible trends accounting for the increase other than improved macroeconomic conditions leading to a healthier market for foreign direct investment. Since 2009, the number of transactions generally has increased each year. However, the 2014 Report's total still remains below the high mark of 155 notices received in 2008.
Last year, discussed here, we described the increase in the number of cases in which CFIUS conducted an extended 45-day investigation or required mitigation to obtain CFIUS approval during 2013. The latest data suggests that the 2013 uptick in the use of such measures may have been a statistical anomaly, perhaps reflecting the facts of individual cases and the effects from the 2013 government shutdown in October, rather than an increased reliance on such measures by CFIUS. Indeed, during 2014, CFIUS initiated investigations in 51 of the 147 transactions filed, a rate of 35 percent. This 35 percent rate aligns with data from 2009 to 2012, where formal investigations were launched in 36 percent to 39 percent of cases filed. Similarly, only 6 percent of cases were subjected to a mitigation agreement in 2014, also aligning with historic norms between 2008 and 2012, which showed mitigation agreement rates between 7 percent and 10 percent.
This stability in the number of investigations and mitigation agreements should be particularly encouraging to Chinese buyers, despite recent headlines of deals scuttled by CFIUS due to national security concerns. The 2014 Report shows that investment from China has been particularly robust, noting that China was the top source of filings for the third year in a row. Chinese buyers represented 16.3 percent of notified transactions in 2014, roughly double the rates between 2008 and 2011. Despite this increase in the number of CFIUS notices involving Chinese buyers, the overall rate of CFIUS investigations and mitigation agreements has remained roughly consistent over this period, with the exception of the outlier year in 2013. Although any decision by CFIUS to investigate or impose mitigation will be driven by the facts of a particular transaction, the trends in the 2014 Report suggest that Chinese buyers need not assume that a notified transaction will necessarily be subject to such measures.
One interesting development that potentially signals a slight uptick in transactions where parties and CFIUS are unable to align commercial needs with national security interests is the number of notices withdrawn and not refiled in 2014. According to the 2014 Report, 12 notices were withdrawn from consideration and only one of these was refiled for further review. This suggests an abandonment of 11 transactions. This is an increase from 2013, which had eight notices withdrawn and one notice (that had been originally filed in 2012) refiled. While the increase in withdrawals may suggest more cases where CFIUS and parties are not able to agree on commercial and national security needs, such a conclusion is not necessarily warranted. The increase could also be due to changing market conditions or circumstances unique to the specific transactions. Further, it is important to consider these statistical movements against the backdrop that the vast majority of matters submitted to CFIUS, including those involving China, are approved.
The 2014 Report also may signal the need for foreign investors to anticipate a longer process to obtain CFIUS approval. In that regard, the continuing growth in the submission of notices overall has increased the burden on CFIUS, which is subject to statutory deadlines once the official review clock starts. As a result, parties are likely to see extended fact gathering taking place during the pre-filing consultation period and delays in acceptance of the formal notice that triggers the initial 30-day review clock. These are effects we have experienced with recent CFIUS filings. Consequently, although the rates of investigation and mitigation agreements have returned to historic norms, foreign parties acquiring control of U.S. businesses that raise national security concerns should continue to allocate adequate time to complete the CFIUS process.
