This month in M&A: China dominates the world

This is a contributed piece by Brett Cole of ansarada

Any country with economic power has to have a few deals to crow about.

In July China offered such examples.

State-owned Tsinghua Unigroup has offered $23 billion to acquire U.S. memory chip maker Micron Technology.

Like any canny acquirer the bid was opportunistic. Micron’s shares had fallen almost 50 percent in the 12 months to the date of Tsinghua’s takeover offer.

Micron is a maker of dynamic random access memory chips. It is the number two such producer globally behind Korea’s mighty Samsung Electronics and like Samsung makes flash memory chips used to store data in devices such as smart phones.

China doesn’t throw its money around. The Micron takeover, if closed, is yet another strategic acquisition for the Middle Kingdom.

China and Taiwan are the centre of electronic manufacturing. The two countries producing much of the gadgets used in professional and personal life and are also huge and growing consumers of such products. The acquisition of Micron will further underline the shift in economic and technological power from west to east, depending on where you are reading these words.

Venture capital analysis: China

Just as tech dealmakers were digesting China’s $23 billion bid for Micron, along came yet another Chinese firm making headlines.

GSR Ventures, a firm set up by Chinese tech entrepreneurs in 2004, is seeking to raise $5 billion to make acquisitions outside China.

Just like the Silicon Valley venture capital firms afraid of missing out on a great investment beyond the Bay Area, China too is searching far and wide for the technology that can further add to its impressive economic engine.

But whatever investments GSR Ventures makes of course will probably not be in companies such as Micron but in software startups. Therein lies opportunities for tech entrepreneurs from Bangalore to Berlin.

GSR Ventures already has an office in Silicon Valley. If the firm raises such a huge cash pile they will undoubtedly expand to Europe.

Of course some of the investments the new GSR Ventures fund may make will be duds. But the senior executives of GSR Ventures and those in the Chinese state that support them are prepared to think long-term. They are learning by doing. GSR Ventures may seek to team up with the Bay Area’s savvy investors, an Accel Partners or an Andreessen Horowitz perhaps.

That may cap GSR Venture’s failure rate while making the firm much more sophisticated much more quickly than if it was working alone.

A look ahead: China later in 2015

Markets, private or public, are always under scrutiny.

The stock market plunges in Shanghai and Shenzhen has brought forth sotte voce mutterings of the immaturity of Chinese capital markets, investors and the government’s attempts to prop up stock prices.

But such criticisms by western financiers are a little like the pot calling the cattle black particularly when it comes to tech valuations.

As of July there were 103 companies backed by venture capital with valuations of $1 billion or more, according to the Wall Street Journal.

By the end of the year the number is likely to be considerably larger unless a few very influential investors or chief executives find voice and denounce that latest bubble in tech land.

But of course such investors and the chief executives know better than to bite the hand that feeds them: the irrational exuberance of markets.

But for how much longer will one on an almost daily basis read about the latest startup valued at so-called unicorn status, courtesy of its venture capital backers of course?

It could continue awhile or like the Chinese equity markets suddenly turn and a flood of money decides to exit en masse, panicking the majority of investors to try and get out too.

There may be some very nervous venture capitalists lying awake at night waiting for the shoe to drop. 


Further reading:

Phil Muncaster comments on GSR Capital’s plan to acquire Western technology here


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