National security concerns dampen cross-border M&As.
Last summer, the US Congress, fretting over national security, passed the Export Control Reform Act of 2018, which raises the hurdles for Chinese investors by expanding mandatory filing and review periods.
In order to formulate the new rules needed to implement law, the Commerce Department’s Bureau of Industry and Security has asked for public comment on the process of imposing tighter export controls on R&D and technology transfers. The bureau also requested a national security review of foreign investment in high tech.
Emerging and fundamental areas affected may include biotechnology, artificial intelligence and microprocessors—all of which have been subject to extensive M&A activity in recent years. Uncertainty surrounding implementation of the new law and changes within the Treasury Department—the responsible agency—could put many current or contemplated transactions on hold as well.
The new law punctuated what was already a rocky year for foreign takeovers of US-based tech companies. According to the Rhodium Group, a research and consultancy firm, Chinese companies completed acquisitions and greenfield investments worth only $1.8 billion in the first half of 2018, a decline of more than 90% from the first half of 2017, and the lowest level in seven years.