August 10, 2023
National Security: CFIUS Issues 2022 Annual Report to Congress
Last month, CFIUS issued its 2022 Annual Report to Congress. The report highlights key indicators of CFIUS’s activities and process, including the complexity and volume of its cases. The report says that CFIUS received a record number of filings in 2022, and that the transactions reviewed and technologies involved are increasingly complex, which has contributed to an increase in the use of national security agreements to resolve the identified risks.
This excerpt from a Fried Frank memo on the report says that it shows that the number of CFIUS notices that were withdrawn by parties continued to rise last year, and discusses what that means for deal timing:
The number of withdrawn notices increased for the second year in a row. In 2022, 88 notices were withdrawn, including 87 of the 162 notices (54%) that proceeded to the investigation phase. By contrast, in 2021 only 72 notices were withdrawn after the commencement of an investigation and in 2020 and 2019, only 28 and 30 notices were withdrawn after the investigation phase began.
For the second year in a row, as well as only the second time in the past ten years, a majority of notices proceeding to the investigation phase were withdrawn. This is a key statistic for deal timing. The number of withdrawn and refiled notices remained high at 68, compared with 63 in 2021. The main reason to withdraw and refile a notice is to obtain additional time for CFIUS to complete its review or for the parties to reach agreement on mitigation measures. It is possible that the factors responsible in part for the increase in withdrawn notices include the level of Chinese inbound investment, CFIUS’s overall workload, and the number and complexity of mitigation agreement.
The memo also says that the number of abandoned deals nearly doubled in 2022 (20 abandoned deals v. 11 in 2021). In 12 cases, those deals were abandoned after CFIUS couldn’t identify mitigation measures sufficient to resolve national security concerns or after the parties chose not to accept mitigation measures that CFIUS proposed.
– John Jenkins