I am a partner at PricewaterhouseCoopers. I am responsible for our relationships with private equity, infrastructure, real estate and sovereign funds on a global basis. I started working in our Sheffield office, predominantly with small and medium-sized industrial organisations, before moving into our deals practice, where I spent the majority of my career working with corporates and private equity houses, undertaking transactions here in the UK and abroad. I then relocated with my family, while still at PWC to the middle east, where I spent a number of years —I got quite a lot of exposure to the sovereign funds there—before moving back to the UK and into my current role.
My areas of expertise are flows of international capital and the deals market. I am not a specialist in national security matters.
Thank you for sharing your expertise with us, Mr Jackson-Moore. What impact do you expect the measures in the Bill to have on the sovereign funds and others you represent—the investors and potential acquirers of UK assets? You said clearly that you were not an expert in national security—why should you be? —but how will you identify those acquirers who may be considered to pose a national security threat? What kind of engagement would you expect to have with the Department for Business in order to make that sort of call?
That is a two-part question. On how the proposed Bill will impact the flow of capital into the UK, generally these are sophisticated investors who operate across the globe, investing in territories that already have equivalent legislation, so the actual legislation itself will not come as a surprise or a barrier. It is in the application of it that there will be concerns, in that, quite rightly, the definitions are drawn quite broadly and we believe that a significant number of transactions and inbound investments will be brought into this—in many cases, voluntarily, so people can get guidance. That will be an area of concern, in terms of whether it will create a barrier, either through publicity or with the timing of bringing capital into the UK. That is probably one of the main concerns right now.
In terms of sovereign funds, I am not in a position to say whether an individual investor or fund is a threat to national security. That is not something I would be looking to comment on.
Q Would you be expecting to advise your clients as to whether the proposals in the Bill might impact on them? Would you expect to be able to engage with the Department in order to establish that? Have you made, for example, predictions of the number of transactions in which you are involved that might be subject to the proposals in this Bill?
In terms of how we might engage with organisations on the applicability of the Bill, I think we would be asked questions about the industries that are covered, the definitions of an industry and what a business actually does. Whether an organisation is drawn into the legislation—whether it is considered a national security threat—is not something we would be involved in. I would be pointing organisations in the direction of their legal advisers on that.
As I said, there are something in the order of 6,000 investments into venture capital in the UK each year. There are approaching 10,000 mergers and acquisitions transactions a year in the UK, plus a number of infrastructure investments, and many of those will fall into the definitions within the Bill. I do not think it is entirely clear to buyers yet whether they would be caught. A traditional private equity house or a venture capitalist looking to invest in a start-up in the UK, may well be owned by Britons, with a management team who are British, but they may have structures that include overseas entities, and many of their investors will be overseas investors. I think that many of those organisations will be wanting guidance as to whether they will be considered an overseas acquirer, even though on the face of it they appear relatively British.
Q Specifically on whether they meet the definition of an overseas acquirer, I was also interested in this. I think one of the assumptions has been that there will be a large number of self-notifications in order to get guidance early on, but you seem to be implying that that might be considered to be declaring yourself as a threat to national security, and that might be a barrier.
No. The way traditional fundraising for a start-up or a transaction takes place is that a business is either put up for sale or seeks investment from a number of parties; the entrepreneur wants to raise finance and have a competitive situation in which the providers of capital are making the most attractive offers possible to reduce the cost of capital for the organisation. I think there would be an incentive for them to be able to say to potential investors, “We are not going to be considered as an asset that is important to national security”. The definitions are quite broad and many organisations will have technologies that right now appear relatively benign and are used for purely civilian purposes but are cutting-edge and on a trajectory whereby in two years’ time they may have military applications or other things that could be a threat to national security.
Q What that says to me is that, while the impact assessment looks at the cost to the acquirer, there will actually be a cost to the acquired party in terms of clearing themselves in advance or clarifying what their situation is, and I do not think that is covered in the impact assessment as it stands.
Yes, in many cases it is a raising of finance for a partial stake. It is an entrepreneur looking to attract capital to expand their business, seeking to bring in an investor to provide maybe 25% of additional equity capital. They want to have a competitive situation where people are offering the most beneficial terms possible. Many of those investors will be overseas investors.
Q Following on that, Mr Jackson-Moore, the current regime under the Enterprise Act 2002 stipulates that the assessment of transactions is dealt with on a case-by-case basis by the Government. This legislation effectively puts into law the timeline by which assessments are made. Do you think that and other provisions in this Bill will send a message to the industry and to the investment community of a slicker, more efficient way of dealing with assessment of transactions?
For the vast majority of existing transactions, the existing legislation was not really a major factor; it only addressed a handful of transactions each year, whereas this is much more in the mainstream of the M and A market and therefore it will be much more on people’s agenda. We already have a number of organisations reaching out to us to understand the potential implications for ongoing transactions.
I do not think the timeframe in itself represents a barrier, since it is not that dissimilar to other jurisdictions, but again it is the application. If you look at Australia, for example, buyers have the ability to pre-clear themselves, and that type of amendment would be very helpful to ensure the free flowing of capital.
Q You caught me making a note there, Sir Graham; apologies. Thank you very much for your evidence so far, Mr Jackson-Moore. It has been incredibly helpful. If I have picked you up correctly, you perhaps inferred that the level of guidance that companies would be seeking in order to provide that assurance is not necessarily there. If that level of guidance is not there, do you feel that that will have an impact on investment ultimately?
Yes, it potentially could, because it will create an additional uncertainty. In order to attract capital, you need as much certainty as possible. An ability to say to investors that we do not believe we are in an area of investment that presents a national security threat is important.
Q As a follow-up to that, in terms of the fact that the Bill is obviously coming before the consultation has been concluded on the sectors and the consequences therein of being caught within a sector or not, do you think that that timeline will have an impact on investment in the short to medium term?
It is already having an effect, in that it is being discussed by organisations that are considering investments into the UK right now. People do not necessarily want to be seen as a guinea pig or have high-profile investments unless they really have to. It is not that it is stopping it; it is just another factor on the balanced scorecard as to whether you are going to make an investment. It is one factor to consider and it is a degree of uncertainty, which is never helpful.
Q Earlier on today, and two days ago, we discussed the link between national security and national interest, and I am sure you would agree with me that attracting inward investment is very much in the national interest. We have just heard from the hon. Member for Aberdeen South about the effect that this might be having. We do very well as a country in terms of attracting inward investment; I think we are No. 1 in Europe. As the Bill stands right now, do you think it will have a detrimental effect on our ability to attract inward investment to the UK?
Not as the Bill stands in its own right. As you say, we are the largest inbound country for venture capital, for private equity and for infrastructure, and we have been seen as the gold standard for the location in Europe to invest into. Many other European territories have equivalent legislation, but again it is about the application of the legislation, in particular the process, the ability to pre-clear and the timelines actually being met. To understand some of these technologies is not going to be straightforward. These are emerging, cutting-edge technologies in some cases, and the talent required to assess that will not necessarily be easy to attract. Some consideration needs to be given to partnering with research institutes or academia in specific areas, so that there is a panel available to assess certain technologies, not only to understand its position right now but also its trajectory—where that technology may go in the next two or three years.
Q Thanks very much for that helpful evidence. I want to focus on this issue of the target risk and the type of asset that is potentially being acquired. I am interested in the role of private equity in the residential care home sector. Large swathes of our residential care homes are owned by private equity companies. I just wonder whether you think residential care, and social and public services of that nature, should be defined as a critical national infrastructure?
Q I am sorry; I saw that you have done a lot of work with private equity and thought that you may have been involved in that aspect of it. On sovereign wealth funds, do you see the China Investment Corporation—I do not know if you have ever done any work with it—as an arm of the Chinese Communist party?
I am not in a position to talk about specific individual organisations. A number of sovereign funds in China are very well regarded in the international capital markets. However, in terms of their interaction with Chinese Government, that is not something that I have a perspective on.
Q My apologies for not being here at the beginning. I am interested in your work on sovereign wealth funds and private equity funds, in terms of working out the value of an investment asset. We heard evidence in the first session this afternoon—I do not know if you were here—than the fact that this Bill will restrict the number of potential buyers out there might then restrict the amount of interest coming in to start with; an investor with a target company to invest in may have limited numbers of people that they could sell it to when they want to exit, which will adjust the price. Have you had any thoughts about that at all?
As I mentioned earlier, the UK is the gold standard for a location to invest in, particularly within Europe. Investors like investing in the UK because of the fairness and transparency, UK law and UK courts, and as a place to be based and to live, so there is an inherent benefit to doing UK-based transactions. However, and as we sit here right now, on a scorecard-type approach, the UK is not as attractive a location as it has been historically. We have the uncertainties of Brexit and we have a number of other territories looking to recover and rethink their economies given the situation we are all in, so there will be more—
Yes, there will be more competition for international flows of capital. As I have said, I do not think this Bill in its own right fundamentally changes the attractiveness, but it does create another level of shorter-term uncertainty, just because people have not seen it operating in practice yet.
Q Let me rephrase the question, then. Countries have directions of travel. Do you think that our direction of travel, as evidenced by things like Brexit and possibly this Bill and others, is a direction to a less attractive place, or not? If you were in government with a five-year plan to try to make us attractive, would this be part of your plan?
It is entirely appropriate to have legislation to protect matters of national security, so perhaps this puts us on a level playing field with other nations. But does it specifically enhance our position for the attraction of international capital? The answer is not specifically, but it sets a standard that the international capital markets expect us to put in place.
We have no further questions from the Committee, so thank you very much, Mr Jackson-Moore, for your time and assistance. We are finishing slightly ahead of time, but I invite the Government Whip to propose to adjourn.