Business Management

This month in M&A: China's role as white knight tech investor meets regulatory resistance

This is a contributed piece from Morag MacKinnon of ansarada

The activities of Chinese investors on the hunt for global assets dominates M&A activity and is hitting record levels just three months into 2016.

According to Dealogic data, in less than three months this year Chinese companies have agreed to $102 billion in foreign deals, compared with a record $106 billion for the previous 12-month period.

Driving this is the recent stock market rout and a slowing economy. China’s economic growth in 2015 was the slowest in 25 years, prompting companies to seek growth via acquisition and cashed-up investors to look outside for opportunities.

Regulation threatens to dampen this spree as more and more foreign deals - particularly those involving China - are being examined, a recent report to the US Congress showed.

It’s because in China, things are a little different. Even if it’s not a state-owned enterprise involved in a deal, it still requires the full backing of the government in order to get enough foreign exchange to pay for any acquisitions.

In February, several US lawmakers called for an investigation into the controversial planned acquisition of the Chicago Stock Exchange by a consortium led by Chongqing Casin Enterprise Group. Their concern is that a possibly state-influenced Chinese firm could gain direct access to the $22 trillion equity marketplace.

Beijing-based Unisplendour Corp has also felt the regulatory pressure, withdrawing from its plan to buy a stake in US hard-disk maker Western Digital Corp after the deal faced an investigation by the Committee on Foreign Investment in the US.

The withdrawal showed Washington’s ability to pour cold water on deals that could give Chinese companies access to US tech.

And sometimes, it’s the targets that pull out first, not wanting to come up against any delays.

California-based Fairchild Semiconductor refused a $2.6 billion offer from state-backed China Resources and Hua Capital, citing US regulatory concerns, and went with a lower bid from a US-based rival.

How little the West understands

The culture of Chinese tech companies and their investors was on display at a forum organised by The Information in Beijing recently, and the tech journal concluded that it showed how little the West understands about the sector in China.

And whilst it’s no surprise that there is a very strong work ethic in China, it seems that in its appetite for risk and delivery speed that it is also diverging from its Silicon Valley counterparts.

The Information quoted US-raised founder of mobile social gaming company PengPeng, Andy Tian, as saying that Uber and its so-called aggressive behaviour comes closest to the way Chinese tech firms operate.

In China, there’s less emphasis on measuring growth of existing products and much more focus on intense and long work hours and a fast pace of innovation.

It poses the question: has Silicon Valley slowed to rest on its laurels or are the Chinese just taking too many risks?

“In China, we don't wait,” Tian told the forum. 

March M&A Deal Roundup

A bid for genetics analysis company Affymetrix, from Origin Technologies - a shell company backed by Chinese private equity firm SummitView Capital and comprised of former Affymetrix execs - is facing scrutiny on the basis of US national security concerns.

The sticking point, according to one US lawmaker, is that Affymetrix has DNA-testing contracts with federal agencies.

Origin has upped its offer in a bidding war with Thermo Fisher Scientific, which is arguing the national security issue too.

Taiwan’s FoxConn continues to argue with Sharp over its finances.

The $5.8 billion bid for a two-thirds stake in Sharp came unstuck at the eleventh hour after Sharp disclosed accounting liabilities FoxConn said it hadn’t been made aware of.

Sharp can expect a lower offer but the deal between the main assembler of iPhones and iPads and one of the largest suppliers of screens for phones and tablets is still expected to proceed shortly.

Camera-maker Canon, which has struggled since the advent of smartphone camera technology, paid $5.9 billion for the medical diagnostic and imaging unit of beleaguered Japanese conglomerate Toshiba, which has accounting issues of its own.

And over at Yahoo, the business, or part of it, might be up for sale, or it could be business as usual.  

It’s anyone’s guess still and whilst dozens of bidders are circling to buy the company, or parts of it, in some sort of anticipated fire sale, Yahoo continues to work on a strategic turnaround.


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