Taiwanese companies are stepping up their presence in the global M&A market. The value of M&A transactions undertaken by local firms investing abroad in 2017 reached a record high, with US$7.25 billion spent across 28 deals. The first quarter of 2018 indicates another record annual deal value may be on its way, with US$2.63 billion already spent on overseas transactions.

While deal volume reached a peak in 2016 with 38 deals announced, 2017 still posted the third-highest annual volume figure on record with 28 transactions.

Big deals but CFIUS looms large

One deal notable for its ambition to build scale and diversify abroad is tech powerhouse Foxconn International Technology's US$866 million planned purchase of US-based Belkin International, announced in March. Through the acquisition, Foxconn will expand its access to brands within the PC/mobile accessories and smart home equipment industries. Foxconn is no stranger to using M&A as a tool to diversify its business. In 2017, the company initiated a US$3.1 billion takeover of Japanese display maker Sharp — the largest announced takeover of a foreign firm by a Taiwanese bidder ever recorded.

Press articles suggest that the Belkin deal will likely need approval from the Committee on Foreign Investment in the United States (CFIUS). The inter-agency committee is reportedly heavily scrutinizing inbound deals — particularly those targeting technology firms. President Trump recently blocked Broadcom's US$142 billion bid for Qualcomm on grounds of national security concerns.

TMT draws out Taiwanese dealmakers

Taiwanese companies have traditionally attracted international attention for their prowess in the semiconductor space. Local firms are increasingly looking to gain their own global presence through M&A. In March, Netherlands-based NXP semiconductors sold a 40% stake in Suzhou ASEN Semiconductors Co., Ltd. to Advanced Semiconductor Engineering (ASE), a Taiwanese supplier of semiconductor services, for US$127 million. The joint venture deal gives ASE access to the rapidly growing global semiconductor assembly and test business.

While the TMT sector attracted the highest value of overseas deals from Taiwanese firms between 2016 and Q1 2018 (US$8.06 billion), it was the industrials and chemicals sector that generated the highest number of transactions (25) over the same period. In a further deal wherein a Taiwanese firm planned to expand into the US, Ta Chen Stainless Pipe Co. acquired a 95% stake in Empire Resources in March 2017 for US$177 million. Ta Chen hopes to enlarge the company's operational scale, efficiency and competitiveness in the industry.

A focus of the Taiwanese government in 2018 is to promote industrial competitiveness abroad, with a particular emphasis on advanced manufacturing equipment, advanced electronics, integrated applications in smart systems and 5G. The government is also giving added attention to growth in healthcare, particularly pharmaceuticals and biotech. In support of the government's goal, local firms will continue to look abroad in order to scale up their capabilities and source innovative technologies.

Convergence between the industrials and tech sectors, spurred by the need to stay ahead of competition, should encourage Taiwanese firms to source even more M&A opportunities overseas.

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