by Fred M. Greguras, Michael J. O’Neil, Chenhao Zhu
China’s investments abroad have increased rapidly and will continue to grow in order to acquire advanced technology, real estate, market channels and other assets. China’s outbound direct investment has risen 30% to $77.1 billion in 2012. As part of its twelfth Five-Year Plan, Chinese government encourages international M&A, with the aim of making the dollar amount of outbound investment match inbound investment by 2015.
With solar module oversupply likely to continue through 2013 and the balance sheets of some solar module and other cleantech companies under severe stress, more industry consolidation is expected. With Chinese companies making large R&D investments on new clean technology, as well as in deployment of proven technology, U.S. technology and businesses are possible strategic targets.
Those proposed investments by Chinese companies could be subject to national security review by the Committee on Foreign Investment in the United States (CFIUS), which has shown a willingness to question a number of China-related M&A and sought a range of national security protections in some deals.
The U.S. protectionism is reinforced by the fact that China’s outbound investment is led by its sovereign wealth funds, such as China Investment Corporation, and other State-Owned Enterprises backed by China’s foreign currency reserve. The mere ownership background of the acquirer would feed U.S. government suspicion.
The recent annual report from CFIUS provides insight into the committee’s national security review (Exon-Florio review) considerations and the potential challenges foreign companies may face when considering M&A transactions and other investments in the U.S.
This article provides an overview of the Exon-Florio review process, the timeframe for decision-making and practical guidance for Chinese companies considering transactions in the U.S. in 2013. While many of the examples are from the clean technology sector because of the large number of distressed companies and assets looking for buyers, the guidance is applicable to other sectors as well.