China deals into the US drop 81% in value in 2017

Last year had a drop in inbound M&A value as the Committee on Foreign Investment in the US took a tougher stance on foreign deals.

The Trump administration’s protectionist policies and the interventions of the Committee on Foreign Investment in the United States (CFIUS), an intergovernmental agency that reviews foreign acquisitions of US businesses, have made an impact on the pace of Chinese investments in the US, according to a report from White & Case.

Total value of deals by Chinese firms investing in US assets plummeted 81 percent, from a record $56.7 billion in 2016 to $10.7 billion year in 2017. The total deal volume also dropped by 15 percent year-on-year. China was the third-largest inbound M&A investor into the US in 2016, but ranked only seventh during 2017 in terms of deal value.

“China has been an important player in US M&A in recent years, but multiple overlapping factors both in China and in the US have had an impact,” John Reiss, a New York-based partner at the firm, said in the report. “There are limitations on Chinese outbound activity because of regulation and overleverage in Chinese financial institutions and large corporates. On the US side, regulation by Trump and CFIUS further limit activity.”

In September last year US president Trump issued an executive order blocking a Chinese-backed private equity firm headquartered in Palo Alto, California, Canyon Bridge Capital Partners, from buying a Hillsboro, Oregon-based chipmaker, Lattice Semiconductor Corporation for $1.3 billion, sending a signal that China-related takeover deals in the high-tech sector face government opposition.

Another deal blocked by CFIUS is Royal Philips’s sale of a controlling interest in its Lumileds business to Go Scale Capital, a tech-focused private equity firm backed by China’s GSR Ventures.

Despite the drop in deal value, 2018 is set to better or match 2017, the report noted. Private equity dealmakers, however, need to be aware of four key factors that will affect transactions in the year ahead. These include the US tax reform, the growing influence of the technology sector, increasing levels of private equity dry powder and the impact of antitrust enforcement, the report highlighted.