Chinese buyers are getting real savvy

Chinese investors have been aggressively pursuing acquisitions, in a move that is unsettling to many.

There is Syngenta’s record-breaking $48 billion sale to ChemChina, Ingram Micro’s $6.3 billion sale to HNA Group, GE’s $5.4 billion sale of its appliance unit to Haier, and Terex’s $4.9 billion sale to Zoomlion.

A Chinese-led investor group is also bidding to buy the Chicago Stock Exchange deal.

That has the Committee on Foreign Investment in the United States (CFIUS) on alert, with the body stepping in to review deals and even on occasion killing transactions.

In response, Chinese buyers have gotten more savvy in negotiating regulations in the US, according to M&A partners at law firm Hogan Lovell.
They’re considering potential CFIUS issues much earlier in the deal process, Brian Curren, who represents investors in national security reviews before CFIUS, said in a roundtable Thursday.

Here is Curren:

“There’s earlier engagement by targets and by Chinese investors on CFIUS issues. So rather than raise CFIUS issues when the parties are drafting an agreement, Chinese investors are thinking now about a variety of different targets, and what are the CFIUS concerns that we may have to think about in relation to a specific sector. So those questions are being raised earlier in the process.”

Chinese investors are also taking steps to ensure they’re putting out an image that they’re playing by the rules.

This includes making CFIUS filings for acquisitions that don’t have an obvious link to the government or national security.

Here is Curren again:

“A number of Chinese investors are saying, ok, maybe just to make sure that our public profile is seen as following all the rules, getting all the approvals, and to tamp down any potential political or other adverse reactions to the acquisition, they think, alright, let’s make the CFIUS review.”

US companies which are considering a sale to Chinese buyers are also asking the same set of questions: whether the deal will go through, if CFIUS would view that company as Chinese controlled if the deal is approved, and if future acquisitions by this US company would be considered as a foreign acquisition and be subject to CFIUS review.

The comments from Hogan Lovell tally with what bankers have described. Earlier this year, Gregg Lemkau, Goldman Sachs’ cohead of global mergers and acquisitions, told Bloomberg TV that a lot of Chinese companies were “still learning how to do M&A.”

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