Inbound monitor
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In H1 2014, inbound M&A into the United States hit a post-crisis high, with 365 deals worth a total US$190.9 billion. This represents a 29 percent increase by volume and a 302 percent rise by value in comparison with the same period in 2013.

Recovering global M&A markets (where deal values hit US$1.6 trillion, a 60 percent increase on H1 2013) combined with a stable US economy and appetite from foreign buyers for assets in the hot pharmaceuticals and TMT sectors have helped to spark the strong inbound deal recovery.
”Global M&A has risen across the board, and that has driven a significant increase in US inbound M&A, especially when compared to last year,” says Dan Latham, White & Case M&A partner. “Although the US economy is not booming, it is stable and has been so for a while. Unemployment and consumer confidence are both heading in the right direction, and a feeling of cautious optimism is returning.”
This appetite for US assets is evident around the world, with bidders from Europe, Asia and the rest of the Americas all pursuing deals. In terms of volumes, firms from the UK, Canada, France and Japan have been the most active foreign buyers in the United States in H1 2014. Inbound deal volumes from each of these countries were also up on their respective figures from the first half of 2013.
Europe recovers Deal activity by European acquirers in the United States has rebounded after a lull in H1 2013. Then, there were only 142 inbound deals from Europe into the US, worth a total of US$13.6 billion—the lowest half-year value in the last six years
In contrast, inbound US deal volumes from Europe for H1 2014 came in at 196, a 38 percent increase on H1 2013 and almost a fifth higher than H2 2013. Deal value of US$90.9 billion in H1 2014 is more than six times the deal value for H1 2013 and 67 percent up on H2 2013.
Cash-rich European corporates that have navigated the worst of the European sovereign debt and banking crises were previously risk averse, but are now turning their attention to growth once more. 
In terms of countries, the UK, France and Germany have all been extremely active in seeking out acquisitions in the US market. UK deals into the United States rose 60 percent from H1 2013 to H1 2014, while France and Germany saw increases of 47 percent and 54 percent, respectively, over the same period.
The United States has been a key overseas geography to target for these investors, thanks to its size and economic stability. For European businesses operating in specific sectors, the United States also offers important strategic opportunities. 
German manufacturers, for example, have been attracted to competitive US energy prices. As recently as last year, the Association of German Chambers of Commerce and Industry (DIHK) said that its research had shown that German companies were increasingly willing to move some of their operations to the United States looking for better conditions. Indeed, DIHK chief Martin Wansleben said at the time: “The United States has become much more attractive to companies than Europe. Germany is in the process of getting sandwiched between eastern Europe with its low labor costs and the United States with low energy costs.”
This trend is still showing, with examples this year including Bayer’s US$14.2 billion takeover of Merck & Co.’s consumer care branch, and car parts manufacturer Continental purchasing Veyance Technologies for US$1.9 billion.
“European companies that have invested in the United States have taken a strategic decision to enter this market,” says Brahmst. “The United States is the largest developed economy in the world and its relative growth rates and risk profile make it a key market for any corporate that wants to expand internationally.”
The United States is the largest developed economy in the world and its relative growth rates and risk profile make it a key market for any corporate that wants to expand internationally.
Oliver Brahmst, partner, White & Case
China calling The volume of Chinese deals in the United States reached its highest level in six years in the first half of 2014, with 25 deals for US targets originating from China, Hong Kong and Taiwan.

This builds on momentum from H2 2013, when 23 inbound deals from Chinese buyers were announced, and is more than twice the number of deals in H1 2012. Prior to the last six months of 2013, there had not been more than 17 inbound deals from China in any half-year period in the last six years.

The value of this investment is also on an upward trend. The US$7.1 billion-worth of deals in H1 2014 was more than three times higher than H2 2013 and the second highest deal value figure for six years. Notable deals include Lenovo Group’s US$2.1 billion acquisition of IBM’s x86 server business, as well as its US$2.9 billion acquisition of Motorola Mobility from technology giant Google.
“While the Chinese have been very active in Asia, I also feel that they believe they can’t afford not to be in the United States as well,” says Brahmst.
The steady increase in Chinese deals into the United States can be attributed to several factors. Firstly, regulations in China have been reformed in order to make it easier for companies to raise money for investment abroad and pursue cross-border deals. Secondly, there is a gradual narrowing of the cultural differences between Chinese and US dealmakers. Chinese investors are adapting to the pace and deal structures in the United States, and US targets are more familiar and comfortable with Chinese acquirers.
Chinese businesses have also recognized the value of establishing a US footprint. “Chinese companies that are investing in the United States are already successful in China and are looking to take the next step and diversify internationally. The United States is an obvious market to move into,” says White & Case partner Francis Zou. “There is a perceived slowdown in Asian economies and companies see opportunities to secure a better return on capital abroad, and the United States is very attractive in that regard.” 
With regards to regulation, the Chinese government has relaxed the approvals required for outbound deals of less than US$1 billion and reformed IPO rules in order to make it easier and quicker for issuers to raise money for cross-border deals.
“The ability of Chinese investors to do deals abroad was hindered by regulation. This put acquirers from China at a distinct disadvantage when competing with other bidders who did not have the same constraints,” Latham says.
However, the Committee on Foreign Investment in the United States (CFIUS), an inter-agency committee authorized to review transactions that could impact the national security of the US, does remain a potential obstacle for Chinese deals in the United States.
China is now the country with the highest number of deals being scrutinized over national security concerns and CFIUS has gradually looked at a broader range of sectors, such as food and pharmaceuticals, when determining whether national security is at risk. 
But although CFIUS is still an issue in Chinese deals, it is becoming less of a hindrance as four out of five transactions scrutinized do receive clearance.
“In the past, China had quite a few issues with CFIUS,” says Brahmst. “Many companies did not really understand how it worked until about two to three years ago.” For more on CFIUS, see Navigating CFIUS.
From a US target’s point of view, being acquired by a Chinese buyer is not as uncertain or unfamiliar as it used to be, making it easier for Chinese acquirers to get a foot in the door.
“Overall I think there is recognition that China could become the biggest economy in the world and that acquisitions by Chinese businesses will become a fact of life,” Latham says. “Chinese acquirers are not buying assets and then sending over an army of their own people to run them. They are taking a strategic view and looking to form partnerships. Perceptions and fears of Chinese ownership are changing and are now less of a concern.”
Differences in deal culture are also narrowing, and Chinese buyers have recognized the importance of moving faster when pursuing a US target.
“The market is challenging for Chinese buyers, especially newcomers who face a steep learning curve when adjusting to faster auction processes and negotiating strategies,” Zou says. “Those challenges are being overcome, however, as large numbers of Chinese citizens who have studied and lived in the United States join Chinese companies and help to navigate deal processes.”
“Since double-digit growth has slipped away from emerging markets, people have looked more closely at those regions and seen behind the curtain somewhat, and seen that they could be a greater risk,” explains White & Case partner Oliver Brahmst. “Profit and growth in a solid jurisdiction, such as the US, may in certain times be more attractive than profit and growth in an unstable environment.” In terms of value, bidders from Canada, Ireland, Japan, the UK and Germany have been making the biggest investments in the United States, and for each of these countries deal values for the first half of 2014 were higher than in the same period of 2013. ”Corporates around the world are sitting on excess cash, and shareholders are no longer satisfied with buybacks and dividends,” Latham says. “They want to see strategies for growth. The United States offers a stable economy, access to a large market and high-quality M&A targets. For businesses that have cash to invest, doing a deal in the United States makes sense.”
Navigating CFIUS
White & Case partner Richard Burke discusses factors Chinese companies should bear in mind when trying to acquire US assets
In its most recent annual report to Congress, the Committee on Foreign Investment in the United States (CFIUS) reported that China now has more foreign investments undergoing US national security reviews than any other country. Here we highlight four imperatives for Chinese investors contemplating transactions that might warrant CFIUS review.
Be proactive. The United States is open for business, but politics dictates that Chinese investors need to plan carefully to succeed. This means not only consulting and filing voluntary notices with CFIUS at the onset of the review process, but also communicating with key US stakeholders when needed. CFIUS has a formal mechanism in its regulations for prior consultation. A number of proposed takeovers by Chinese companies have faced criticism from the US Congress. More effective outreach to both supporters and opponents in Congress could potentially have curbed some opposition.
Be cautious. As the dealmaking landscape changes, so does the nature of the CFIUS national security risk test. With this in mind, Chinese investors need to consider all aspects of a deal to determine if it warrants CFIUS review, from whether a deal involves the acquisition of critical infrastructure or technologies, to whether it could be targeted due to its geographic location. A Presidential order blocked Delaware-based Ralls Corp—which is owned by Chinese nationals—in its attempt to purchase four wind-farm projects because the farms were “all within or in the vicinity of restricted air space at Naval Weapons System Trading Facility Boardman in Oregon.” Ralls had chosen not to submit its original investment for CFIUS review. Careful due diligence can enable companies to better understand the considerations that might be of sensitivity to CFIUS.
Be flexible. Very few deals ultimately face CFIUS opposition. CFIUS will often, however, impose conditions prior to clearing a transaction. The increasing number of conditional approvals granted by CFIUS means that Chinese investors will need to be flexible and practical in how they structure their transactions to assuage concerns and to maximize their chance of obtaining clearance. For example, US investment targets may include lines of business with sensitive government contracts or defense-related work. Such business remains problematic for Chinese acquirers from a CFIUS perspective. Preemptively excluding such sensitive operations from a deal has enabled CFIUS to approve Chinese investments that otherwise may have been blocked. Stay informed. Sensitivities, justified or not, regarding Chinese investment affect the regulatory environment. The acquisition by Shuanghui International Holdings of Smithfield Foods, for example, triggered concerns about food safety. This, in turn, contributed to legislative efforts to make CFIUS review more restrictive. A bill was recently introduced in Congress that would, among other things, extend the scope of CFIUS review to include an analysis of “net benefit” to the United States based on criteria such as economic activity, employment, productivity, industrial efficiency, tech transfers, public health and safety, and well-being of US consumers. The consensus is that this bill will not be enacted in the current Congress, but could be the precursor of similar efforts in the future. It is important that investors stay informed of these developments and factor them into their strategy.
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