CFIUS is a body comprised of cabinet heads, who can review transactions that affect national security. Under prior presidents, it was rarely used. The specific topics that are mentioned in the regulations are infrastructure and technology. One of the areas that has been flagged is an acquisition that could result in a foreign entity gaining access to information about US shareholders or owners. This concern has been raised in potential acquisitions of financial institutions. Most real estate interests should be of little concern unless a major tenant is a company such as NSA. Hospitality companies have not been priority targets, but that may change as the Trump administration is increasingly tightening review standards.
What industries and assets are most likely to be flagged for risk in a CFIUS review?
We operate multiple funds and are active in numerous industries and sectors. We understand that it is getting more difficult to get deals through CFIUS. We do not want to waste time and energy on deals that will end up getting blocked. What industries and sectors should be avoided? What industries and sectors are the safest options? Why?
CFIUS assesses transactions based on the target, the investor, and the nature of the investment (e.g., passive, minority investments vs active investments / acquisitions of control)—all to determine whether the transaction threatens US “national security.” Historically, CFIUS focused on industries in the supply chain for military equipment and US critical infrastructure (like power plants). In the last several years, CFIUS has also been concerned about the proximity of the target’s facilities to sensitive US government sites, whether the target has important US government contracts, telecommunications, semiconductors, whether the target had access to US networks (like energy or payments) or has rich data about US persons (especially government workers), among other things.
Any industry that implicates U.S. national security can be a CFIUS target as well as any tangible assets located in the vicinity or with access to sensitive military installations. Traditionally, real property assets were less likely to draw CFIUS review so long as they were not near or in the vicinity or had access to military or other national security assets. However in the current environment, CFIUS review has become as aggressive as we have ever seen it in our careers.