In Trump, a tech M&A watchdog with more bite

Contact: Brenon Daly

Regardless of how you voted – and whether today you’re mischievously grinning and flipping the finger at Washington DC or hastily planning a move to Canada – there are still deals to be done. There might not be as many of them, as has certainly been the case in the run-up to the election, with monthly transaction volume dropping about 10% since last summer. But tech companies are still going to want to consolidate rivals, buy their way into promising adjacent markets and roll the dice on unproven startups as they look to M&A to drive growth.

That said, some of those strategies – particularly those that involve foreign acquirers of US assets – may well get more scrutiny in the new Trump regime than they would have during a Clinton presidency. That would be our contention anyway, based on the protectionist sentiment that Trump espoused during his campaign. In particular, he has singled out China for some of his sharpest criticism. Trump has said he plans to bring a case, both in the US and at the World Trade Organization, against ‘unfair subsidiary behavior’ by the world’s most-populous country. If we look at how that contentious view could impact tech M&A, we can certainly make the case that Chinese buyers probably won’t be shopping as freely in the US in the coming years.

If that is indeed the case, the slowdown would end a dramatic acceleration in deal flow this year. Already in 2016, Chinese buyers have spent more money on US tech vendors than in the previous five years combined, according to 451 Research’s M&A KnowledgeBase. In terms of deal volume, they’ve done almost as many transactions in the first 10 months of 2016 as they did, collectively, over the past two years. This year’s shopping spree has included a number of well-known names, which is also likely to draw the attention of a populist president such as Trump. Chinese buyers have recently picked up Ingram Micro, which swings nearly $50bn worth of tech gear and services each year, 25-year-old printer maker Lexmark and even a majority stake in the gay dating app Grindr.

Regulatory review has always been a consideration in any significant tech deal. We would guess that with Trump’s election, he will probably look to strengthen the Committee on Foreign Investment in the United States (CFIUS). At least in tech transactions, that intra-agency committee hasn’t been as active as it was a decade ago. (Somewhat dramatically, we termed CFIUS an ‘angel of death’ after it blocked the proposed sale of 3Com in 2008 due to the participation of Chinese networking giant Huawei Technologies.) In Trump’s new regime, that watchdog will almost certainly have more bite.