Cross Border M&A Deals & Impact on IB careers
Investment banking deals business are evidently in a slump with the volatile markets. Traditional capital raised from IPOs has dropped over 90% compared to the same period last year. The news is bleak for iBanks as the majority of their profit comes from M&A advisory services in recent years.
For those looking to join IBD, there is a new phenomenon in the market that is worth looking at. Recently, an acquisition from a Hong Kong-registered firm to purchase a British tech company was called off. The Super Orange HK Ltd. and Pulsic Ltd. merger was axed due to national security concerns from UK. Some western regulatory activities showed a determination and willingness to halt Chinese semiconductor development.
Pulsic Ltd. is a Bristol-based chip design software provider. The software they develop can be used to build electricity grid networks, which is a crucial technology for semiconductor production. The UK pointed out that it is ‘necessary and proportionate to mitigate the risk to national security’ as the risk of the merger being weaponized by the Chinese government increases. Super Orange HK is accused of having violated the National Security and Investment Act passed in January this year.
In reality, Super Orange HK although registered in Hong Kong, is under control by the Shanghai UniVista Industrial Software Group backed by the state-backed National Integrated Circuit Industry Investment Fund. It's been a common practice for Chinese firms to raise foreign capital via a Hong Kong-registered firm to bypass regulations. The blockage from the UK is another step to heighten the hostility toward Chinese tech firms and safeguard their interests in the industry.
Chip design software is crucial to semiconductor production and in recent years, the Chinese demand for semiconductors has skyrocketed. With the FCC banning ZTE from the domestic US and Canadian market, and the congress passing the CHIPS and Science Act earlier this year, among many other western regulations to block Chinese development in the related industries, China needs to develop its own third-generation semiconductor technology to stabilise its supply chain.
It is more advantageous to acquire technologies than to develop them. When an acquirer buys a company, the transaction covers the intellectual property of the target company. If Super Orange successfully acquired Pulsic, China could directly take reference from or even use Pulsic technologies.
Although it is a first for the UK to call off an M&A with a Hong Kong-registered tech for national security reasons, it is not a first for China to see failure in similar acquisitions. The Chinese firm Wingtech Technology had already made an attempt to acquire the largest English semiconductor factory Newport Wafer Fab through their dutch subsidiary Nexperia NV last year.
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