The British government is following in the footsteps of other European countries and implementing policies to shield vulnerable companies from unwanted foreign takeovers with a focus on the tech sector amid the fallout from Covid-19.

The reform to the 2002 Enterprise Act – brought to parliament on June 22 – will allow the government to scrutinise strategic foreign takeovers to ensure they do not undermine the UK’s ability to combat a public health emergency

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“These measures will strike the right balance between the UK’s national security and resilience while maintaining our world-leading position as an attractive place to invest – the UK is open for investment, but not for exploitation,” said business secretary Alok Sharma in a statement.

The new powers will enable the government to intervene if a business directly involved in a pandemic response – such as a vaccine research company or personal protective equipment manufacturer – finds itself a takeover target.

Protection for tech sector

The new rules are not limited to the health industry. Since 2018, the government has had the power to scrutinise takeovers of enterprises in sensitive areas, such as computer hardware, products for military applications and quantum technology. These powers will be expanded to include artificial intelligence, cryptographic authentication technology and advanced materials.

British artificial intelligence companies secured a record $1bn investment between March and September 2019, surpassing the whole of 2018, according to data from Crunchbase and TechNation. However, the government is on alert following an emergency commons inquiry into potential asset-stripping of UK high-tech firms following an aborted Chinese takeover of Hertfordshire-based chip designer Imagination Technologies in April.

“The government wants to review foreign investment in British companies which are critical to the pandemic response, so it can maintain control over issues of public health. Many countries have already done the same, such as Spain, France, Australia and Italy,” said Samantha Mobley, a partner specialising in trade and competition law at Baker McKenzie.

“It shows how seriously the government is taking the issue of protecting British companies in sensitive business areas from foreign influence. With digitalisation, AI is now a part of most industries so the potential impact of these latest reforms is far reaching across British business,” she added.

The British government’s move follows the implementation of tougher screening measures around the world. The European Union recently announced plans to defend itself against subsidised foreign businesses and assert “strategic autonomy” from China and the US.