CFIUS Review and National Security Considerations in A&D Deals

Introduction

The Committee on Foreign Investment in the United States (CFIUS) is the most consequential regulatory body for cross-border A&D M&A. CFIUS reviews transactions that could give a foreign person control of, or certain rights in, a US business to determine whether the transaction poses a risk to US national security. For A&D companies, where the products and services are inherently tied to national defense, CFIUS review is virtually guaranteed when a foreign acquirer is involved, and the committee's ability to block transactions, impose conditions, or force divestiture makes it a deal-determinative regulatory hurdle.

For A&D investment bankers, CFIUS is not just a compliance checkbox. It fundamentally shapes buyer universe construction, deal structuring, timeline management, and risk assessment on every cross-border transaction. The 2025 "America First Investment Policy" has further differentiated the CFIUS experience based on the acquirer's country of origin, creating a tiered system that bankers must navigate.

CFIUS review follows a structured timeline with three potential phases, though many transactions are resolved without reaching the final stage.

Committee on Foreign Investment in the United States (CFIUS)

An interagency committee chaired by the Treasury Department that reviews foreign acquisitions of US businesses for national security implications. CFIUS has the authority to approve transactions (with or without conditions), extend reviews for investigation, negotiate mitigation agreements, and recommend that the President block a transaction. The committee includes representatives from the Departments of Defense, State, Commerce, Homeland Security, Justice, and Energy, among others. For A&D transactions, the Department of Defense is typically the most influential voice on the committee.

Phase 1: Declaration or Notice. Parties can submit either a short-form declaration (30-day assessment period) or a full written notice (45-day review period). Declarations are appropriate for straightforward transactions where the national security risk is clearly mitigable. Full notices are required for more complex transactions and are the standard approach for significant A&D deals. The filing includes detailed information about the acquirer's ownership structure, the target's operations (including any classified contracts or ITAR-controlled activities), and the transaction terms.

Phase 2: Investigation (45 days). If CFIUS determines during the initial review that the transaction may pose national security concerns that cannot be resolved through the initial assessment, it opens a 45-day investigation. During this phase, the committee conducts a deeper analysis, consults with intelligence agencies, and often negotiates mitigation measures with the parties.

Phase 3: Presidential Decision (15 days). If CFIUS cannot resolve the national security concerns through mitigation, or if the committee members disagree, the matter is referred to the President for a final decision. Presidential blocks are rare but have occurred (most notably, President Trump's blocking of Broadcom's proposed acquisition of Qualcomm in 2018 on national security grounds).

CFIUS review has several practical implications that bankers must manage throughout the deal process.

Buyer universe stratification. The 2025 "America First Investment Policy" created a tiered system based on the acquirer's country of origin. Investors from "Excepted Foreign States" (Australia, Canada, New Zealand, and the UK) benefit from streamlined reviews and fewer filing requirements, reflecting the AUKUS and Five Eyes alliance framework. Investors from allied nations face standard review timelines. Investors from "countries of concern" (primarily China, Russia, and other adversarial states) face heightened scrutiny and are effectively blocked from acquiring most A&D companies.

Timeline extension. CFIUS review adds a minimum of 45 days (for a standard notice review) to 90+ days (if investigation is required) to the deal timeline. Combined with ITAR compliance review and security clearance transitions, this means cross-border A&D transactions routinely take 9-12+ months to close. Bankers structure deals with interim operating covenants, ticking fees, and reverse termination fees to allocate the risk of extended timelines.

Mitigation agreements. CFIUS often approves transactions subject to conditions designed to address national security concerns. Common conditions include: establishing a Special Security Agreement (SSA) or proxy board to insulate classified operations from foreign influence, maintaining US citizenship requirements for key positions, restricting the foreign acquirer's access to classified or ITAR-controlled information, and agreeing to ongoing compliance monitoring. These conditions can significantly affect the operational integration plan and must be factored into the buyer's valuation and due diligence.

Early CFIUS assessment. On any A&D transaction involving a potential foreign acquirer, conduct an informal CFIUS risk assessment before engaging with the buyer. Evaluate the acquirer's country of origin, ownership structure (including limited partners in PE fund structures), and the target's specific national security sensitivities (classified programs, ITAR-controlled technologies, proximity to military installations).

Pre-filing engagement. CFIUS encourages informal pre-filing consultations with the Treasury Department's staff to discuss potential transactions before formal filing. Experienced A&D dealmakers use these consultations to gauge CFIUS reaction and identify potential mitigation requirements early, allowing deal structures to be adapted before significant resources are committed. For bankers, coordinating between CFIUS counsel, the buyer's regulatory team, and the deal team is a critical project management responsibility that distinguishes effective A&D execution from generic M&A advisory.

Voluntary filing as strategic protection. Even when not strictly mandatory, voluntary CFIUS filing provides a "safe harbor" against future enforcement action. This safe harbor is increasingly valuable as CFIUS expands its retroactive review authority. Bankers advising foreign acquirers on A&D transactions typically recommend voluntary filing even when the mandatory requirements are ambiguous, because the cost of filing is modest compared to the risk of a retroactive review years after closing.