Clifford Chance
A Quantum Leap
Recent Quantum Computing M&A and IPOs, Regulatory Responses and Preparing for a Paradigm Shift
Quantum computing until recently sounded like science fiction. It is the idea that computers will one day harness quantum states of 'superposition' and 'entanglement' to perform calculations and solve computational problems so complex that they are out of reach of classical computers within any feasible amount of time.
But experts in quantum science seem confident that quantum information technology is coming and soon we will be replacing our classical binary digits or 'bits' (either 1s and 0s) with 'qubits' (quantum bits floating in a quantum state).
There has been tremendous progress in recent years. In 2019, a partnership between Google AI and NASA announced they had achieved 'quantum supremacy', in other words, their quantum computer is the first to have performed a calculation that would have been practically impossible for its classical equivalent.[1] This feat was repeated by Chinese researchers in 2020.[2] The UK Government is already projecting that quantum computing will provide £4 billion of economic opportunities globally by 2024[3] and there are estimates that the quantum computing industry could reach a value of $50B by 2030.[4]
The past six months has seen a sharp uptick in investments and M&A deals in the quantum computing sector:
- On 1 October 2021, IonQ completed its IPO on NYSE through a SPAC merger, raising $635M. Headed by a former Amazon executive and has been financed by Softbank among other investors, the company is working on trapped ion quantum computer hardware and expects to see a significant jump in revenues between 2024 and 2026.
- On 27 July 2021, PsiQuantum raised $450M in a Series D financing round led by Blackrock amongst other investors. The company aims to build the world's first fault-tolerant commercially viable quantum computer.
- On 8 June 2021, Honeywell merged with Cambridge Quantum Computing to create the world's largest standalone quantum computing company.
- Quantum Exponential has said that it aims to list its shares on the Acquis Stock Exchange to be come the UK's first quantum technology company listing.
The arrival of this new generation of supercomputers will have far reaching implications for entire sectors. The most frequently cited case study is in cryptography, secure communications, surveillance and national security. Quantum computing will mean that previously 'unhackable' systems can be easily cracked.
But it is equally exciting to think of the applications of this unleashed computing power in cutting edge technology used in everyday life, for example:
- Artificial Intelligence and Machine Learning (e.g. autonomous vehicles)
- Life Sciences and Health Tech (e.g. drug development, molecular simulation, protein modelling, cancer research, vaccine research)
- FinTech and Finance (e.g. dynamic arbitrage, monte carlo models, trading optimisation, market predictions, greater compliance)[5]
- Climate Change and Agriculture Tech (e.g. complex variable weather forecasting, extracting energy efficiencies)
What legal and policy issues do we anticipate for our clients who are developing, using or investing in quantum computing technologies?
Data Privacy and Cyber Security. Cyber security is a board-level risk and any breaches have regulatory consequences with severe sanctions and financial penalties. The future of data privacy and cyber security now needs to be 'quantum proof'. Businesses will need to plan their incidence response in case of cyber attacks and ensure that they have migrated to 'post-quantum' encryption algorithms. This includes being aware of any publicly circulating data that 'bad actors' may be deliberately seeking out and archiving now for future decryption once quantum computing becomes widely available.
Foreign investment controls. Governments globally are clamping down on investment by foreign investors in quantum computing companies, imposing mandatory review periods while they assess the national security implications of the technology, to cite a few examples:
- UK: the new National Security and Investment Act (2021) requires mandatory filings and government approval before completing certain investments in a 'sensitive sector', like quantum computing. [Click here to read our article on the UK National Security and Investment Act and its impact].
- US: companies with 'critical technologies' may be subject to mandatory filings with the Committee on Foreign Investment in the United States (CFIUS) and post-quantum cryptography was recently included as a technology deemed essential to US national security, included within enhanced controls [Click here to read our article on new technologies for CFIUS].
- France: 'quantum technologies' are included within the definition of 'strategic sectors' and mandatory prior approval is required if any investor acquires control of companies in strategic sectors or if a non-EU/EEA investors acquires more than 25% in a private French company, lowered to 10% where that company is listed on a regulated market [Click here to read our article on amendments to the French foreign investment control regime].
- Australia: prior approval may be required from the Foreign Investment Review Board (FIRB) for foreign investments in quantum technologies and approval is mandatory if such technology has military application.[6]
ESG / Compliance. The application of quantum computing to supercharge artificial intelligence and machine learning will have ethical implications and will need to take into account regulatory proposals on the horizon for artificial intelligence, such as the EU Regulation on AI [Click here to read our article on the future of AI regulation in Europe and its global impact].
Increased Government Incentives. The investment climate will only be further stimulated by increased array of incentives from national governments. In the EU, for example, the European Council adopted regulations in July 2021 to establish the European High-Performance Computing (HPC) Joint Undertaking with a €7B budget, aiming to coordinate European supercomputing strategies and investments to establish Europe as a global HPC power. This program is directly targeting the development and deployment of quantum computing and quantum simulation infrastructure.[7] In the UK, the UK's first commercially available quantum computer is being developed with significant UK government funding.[8]
Given the recent investment and M&A activity in the quantum computing sector, we expect there to be a tremendous amount of public policy attention on developments quantum computing and its consequences and we will be providing our clients with regular updates on the evolving regulatory responses.