The CFIUS Choke Point: How Surging Semiconductor and Aerospace Scrutiny is Rewriting Cross-Border M&A in 2026

Cross-border dealmaking is experiencing a cautious renaissance in 2026, but for foreign investors looking at U.S. assets, the welcome mat is increasingly lined with tripwires. As global capital flows attempt to normalize after years of macroeconomic turbulence, the Committee on Foreign Investment in the United States (CFIUS) has firmly established itself not just as a regulatory hurdle, but as a primary architect of global tech and defense supply chains.

According to a highly insightful client alert recently published by Latham & Watkins analyzing the 2025 CFIUS Annual Report, the landscape of foreign direct investment (FDI) in the U.S. is characterized by a modest rebound in overall filing volumes. However, beneath this headline recovery lies a stark reality for M&A practitioners: an aggressive, hyper-focused regulatory tightening around critical technologies, most notably in the semiconductor and aerospace sectors.

For corporate lawyers, regulatory counsel, and dealmakers, the 2025 data is a blaring siren. The era of the "rubber stamp" clearance is definitively over, replaced by an environment where prolonged investigations, complex mitigation agreements, and proactive enforcement are the baseline expectations.

The Numbers: A Thawing Market Meets a Hardened Perimeter

The latest CFIUS Annual Report reveals a fascinating dichotomy. While the sheer volume of filings—both short-form declarations and long-form notices—has ticked upward, reflecting a broader recovery in global M&A, the friction involved in clearing those deals has intensified.

Latham & Watkins highlights that while investors are eager to deploy capital, CFIUS is equally eager to utilize its expanded statutory authority under the Foreign Investment Risk Review Modernization Act (FIRRMA). The data shows a persistent reliance on the traditional "Notice" process over the expedited "Declaration" process for complex deals, largely because dealmakers are anticipating scrutiny and opting for the certainty of a safe harbor, even if it takes longer.

Sector Spotlight: The Semiconductor and Aerospace Squeeze

If there is a central thesis to the 2025 CFIUS data, it is the U.S. government's unyielding focus on technological supremacy and supply chain resilience. The Latham & Watkins analysis points to surging activity and scrutiny in two distinct verticals: semiconductors and aerospace.

The Semiconductor Imperative

Following the massive capital injections of the CHIPS and Science Act, the U.S. has essentially ring-fenced its semiconductor ecosystem. CFIUS is acting as the gatekeeper to ensure that foreign capital does not siphon off the IP or manufacturing capabilities subsidized by American taxpayers.

For law firms representing foreign buyers or domestic sellers in the chip space, the definition of what constitutes a "semiconductor" asset has broadened dramatically. It is no longer just foundries and fabless designers; CFIUS is aggressively scrutinizing deals involving semiconductor manufacturing equipment, advanced packaging technologies, and even specialized chemical suppliers.

"The 2025 report makes it abundantly clear: if your transaction touches the semiconductor supply chain in any capacity, you are not flying under the radar. CFIUS is mapping the entire ecosystem, from raw material inputs to final integration, and applying a national security lens to every node."

Aerospace and Defense: The Dual-Use Dilemma

Similarly, the aerospace sector is experiencing a wave of CFIUS friction. With the commercialization of space accelerating and the lines between civilian aerospace technology and military applications blurring (the "dual-use" dilemma), CFIUS is taking a highly conservative approach.

Transactions involving satellite communications, drone technology, and advanced materials (like carbon composites) are almost guaranteed to trigger deep investigations. Dealmakers must now assume that any aerospace target with federal contracts—even minor ones with agencies outside the DoD, such as NASA or the FAA—will be subjected to severe national security vetting.

The Rise of the "Non-Notified" Threat

One of the most critical takeaways for legal professionals from the Latham & Watkins alert is the continued aggression of CFIUS's non-notified transaction team. This dedicated unit actively scours commercial databases, press releases, and trade publications to identify closed deals that were not voluntarily submitted for review but may pose a national security risk.

• Retroactive Peril: CFIUS retains the authority to "call in" a transaction long after it has closed. In the worst-case scenario, the Committee can force a divestiture, unwinding years of integration.
• The Private Equity Target: PE and venture capital firms with complex, multi-national limited partner (LP) bases are frequent targets of these non-notified inquiries, especially if they have invested in U.S. critical technology startups.
• The Law Firm Burden: The risk of a post-closing CFIUS inquiry places immense pressure on legal counsel during the due diligence phase. Advising a client to skip a voluntary filing is now one of the highest-risk judgment calls a corporate partner can make.

The 2026 Dealmaker's Playbook: Adapting to the New CFIUS Reality

The insights gleaned from the 2025 CFIUS Annual Report demand a fundamental shift in how U.S. law firms structure cross-border transactions. The days of treating CFIUS as a boilerplate closing condition are over. Here is how top-tier M&A practices are adapting in 2026:

1. Front-Loading the Mitigation Strategy

Because mitigation agreements—such as requirements to house U.S. citizen data on domestic servers, or appointing government-approved security officers—are becoming standard, counsel must negotiate these frameworks *before* signing the definitive agreement. Buyers and sellers must agree in advance on what level of mitigation is commercially acceptable, often quantified as a "burdensome condition" threshold in the merger agreement.

2. Re-Engineering Drop-Dead Dates and Break Fees

With CFIUS increasingly pushing reviews into the 45-day investigation phase—and occasionally requesting parties to withdraw and refile to reset the clock—deal timelines are stretching. M&A lawyers are extending standard drop-dead dates from 6-9 months to 12-18 months for sensitive sectors. Furthermore, "CFIUS reverse break fees" (where the buyer pays the seller a penalty if the deal is blocked by regulators) are becoming heavily negotiated points, shifting regulatory risk between the parties.

3. Granular LP Diligence

For investment funds, relying on traditional "passive investor" exemptions is increasingly risky. CFIUS is demanding unprecedented transparency into the ultimate beneficial ownership of funds. Fund formation and transactional lawyers must work in tandem to ensure that co-investment rights or information access granted to foreign LPs do not inadvertently trigger CFIUS jurisdiction over an otherwise exempt deal.

Conclusion: The Geopolitical Practice of Law

The Latham & Watkins analysis of the 2025 CFIUS Annual Report serves as a vital barometer for the U.S. legal market. The data confirms that national security is now the dominant lens through which cross-border commerce is viewed in Washington.

As we move deeper into 2026, the most successful M&A and regulatory attorneys will be those who can translate geopolitical shifts into actionable deal mechanics. Understanding the nuances of semiconductor supply chains or aerospace dual-use technologies is no longer just the domain of industry specialists; it is a baseline requirement for any lawyer looking to close a major cross-border transaction in the United States.