This content is from: Corporate

Opinion: FIRRMA could permanently damage M&A

The bill will significantly expand how and why Cfius is able to review both inbound and outbound deal making, and isexpected to change the face of M&A extensively,

If certain parts of the media are to be believed, Russia, China, North Korea, Iran and others are engaged in a vendetta against the US and its allies and want to systematically destroy everything that it stands for through digital warfare. While US national security has been a talking point for generations, in the data heavy age where regulations like the General Data Protection Regulation and the consolidated audit trail are more necessary than ever, and with tech giants seemingly ruling the roost, there is a different conversation taking place today.

Given these changing definitions it is hardly surprising that the Committee on Foreign Investment in the United States (Cfius) is busier than ever, and is delving into new and unexplored territories. Proposed changes to Cfius that could grant it an additional mandate in its quest to guard US national security have been introduced into the House and the Senate, and sources suggest that it is likely to be be officially signed into law by the President as soon as August.

As IFLR has reported in the past, the bill will significantly expand how and why Cfius is able to review both inbound and outbound deal making. It's expected to change the face of M&A extensively, particularly within the tech sector. However, given the uncharted path that the financial and corporate sector appears to be taking it is going to more important than ever to ensure that the agency has the resources and the required man hours to do its job effectively. Protect national security, but not at the expense of innocent M&A transactions.

As technology and consumer demand progress, finding a company that doesn't have a successful application that automates its process is rare; even Goldman Sachs has repeatedly described itself as a technology company. With the new parameters of Firrma in place, Cfius may well be inundated, and although its intention may not be to throttle M&A, it may do so just by virtue of being a bit slow in its review process. Cfius should be focusing its energy on deals that have a genuine impact on national security, not every global technology acquisition that happens to be routed through Beijing or St Petersburg. Add into the mix the relatively new discussion of forced technology transfers, where there have been claims in the US that tech firms are being forced to divulge the source code of emergent software as part of the legal and commercial aspects of a sale into the two countries, and Cfius could well be forced to look at every single foreign transaction that happens in just about any non-whitelisted country worldwide.

Cfius' recent decision to block Qualcomm's acquisition of Broadcom was unprecedented, and shows that the definition of national security has already been changed. In this instance it has been the share price of the Singaporean company that has tanked in the wake of the failed transaction, but the outcome could easily have been reversed.

The committee and those drafting its legislative amendments must factor the opportunity costs of extensive changes to the way in which it can be applied, and ensure that it is does not act as a hindrance to the very country it has been installed to protect because of a simple lack of resources, or find another way to operate.

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