With concerns over challenges posed by China, the US government recently introduced new measures designed to enact control over the transfer and use of US goods and technologies both in the US and abroad.
Applicable to emerging market M&A and joint ventures, these new measures manifest as two new laws – The Foreign Investment Risk Modernization Act (FIRRMA) and the Export Control Reform Act (ECRA).
FIRRMA clarifies and expands the authority of the Committee on Foreign Investment in the United States (CFIUS) to analyze, monitor and budget for an extensive range of transactions that go beyond corporate acquisitions. ECRA provides sweeping statutory authority for regulation of commodities and technology, including in-country transfers and changes in an item’s use in foreign countries.
Highlights of CFIUS’ new authority includes monitoring “critical technology” use by: (1) non-US acquirers; (2) non-US minority partners in US joint ventures; (3) investment in US venture capital funds by foreign investors; and (4) sales, licenses or export of technology to non-US companies.
Applied to emerging markets, one must be cognizant of the fact that critical technology and infrastructure, real estate and bankruptcy related transactions will now fall automatically under CFIUS’s jurisdiction in addition to CFIUS’s historical concerns.
One should also expect greater scrutiny of Chinese investments in and acquisitions of U.S. technology companies; transaction parties devoting more attention to addressing CFIUS-related risk; higher transaction, legal and fee expenses; longer time to closing for acquisitions; and new rules expected within the year that will further affect transactions.