The western backlash against China's dealmaking

Why has Chinese dealmaking fizzled out? Due Diligence’s dynamic duo, James Fontanella-Khan and Arash Massoudi, answer this question in a brilliant comic book style video.

But how we got here is a longer story. It starts with the election as US president of Donald Trump, who comes into office in January 2017 vowing to combat unfair Chinese trade practices. In August 2017, Jim Brunsden, the FT's EU correspondent, has a scoop on the European Commission's plan to call for more rigorous screening of foreign takeovers of European companies. Brussels' attempt to address mounting concerns about a surge of Chinese investment into the EU’s high-tech manufacturing, energy and infrastructure sectors is followed six months later by a call from Peter Altmaier, Germany’s newly installed economy minister, for the creation of a state investment fund that could pre-empt foreign takeovers of big German companies.

On July 25 2018, the word “China” appears only once in a 120-page policy document released by the UK with the aim of enhancing the government’s powers to prevent foreign purchases of security-sensitive British assets, say FT reporters writing from London and Beijing. But several UK officials confirm the proposals' main target is Beijing's frenzy of overseas dealmaking. “There’s no particular panic," says a senior UK official, "but there have been one or two cases where Chinese companies have been able to buy assets in a way that gets around the [existing UK scrutiny arrangements].”

Less than a week later, Due Diligence reports that "dealmaking is becoming politicised, fast" with Beijing signalling a tit-for-tat move. New draft requirements from the Chinese commerce ministry would impose expanded national security rules on foreigners trying to acquire “strategic” stakes in Chinese companies.

Last but not least, in October 2018, the Trump administration announces it will broaden reviews of foreign investments in critical US technologies. Expanding the power of CFIUS, the body that vets foreign deals, follows a vote by Congress to protect American know-how from foreign powers including China by giving government the ability to scrutinise and block even small minority foreign investments into sensitive technologies.

By the end of 2018, global data show that dealmaking has decelerated rapidly from the record pace seen at the start of 2018, with the final three months of last year set to be the quietest period for mergers and acquisitions since the third quarter of 2017.

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by Baker McKenzie
Healthcare meets tech: fit for purpose

Increasing pressure on healthcare systems, massive tech growth and consumer-led demand are the perfect recipe for strong M&A activity in the emerging healthtech sector.

With healthcare making up eight out of the top ten largest M&A deals last year, activity in this sector is buoyant.  However, the need to cut costs, increase efficiency and improve systems has led healthcare companies to collaborate with tech companies who can offer in-depth digital expertise. Whilst tech companies have the platforms to help, and the potential revenues are vast, they don’t necessarily have the market share or, crucially, the consumer trust. This point of convergence is therefore mutually beneficial and driving the market forward with significant recent growth in healthtech M&A activity.

The demands, which are being underpinned by an ageing population, increased desire by consumers to manage their own health and the push for efficient delivery mean that legacy healthcare companies are developing their digital offering. “On the healthcare side we’re seeing much more M&A but largely acquisitions of small start-ups which have got the tech or data analytics expertise” according to Baker McKenzie’s Global Transactional Healthcare Group head Jane Hobson. “To survive, companies have to enhance their technology and in order to do that it’s not just buying it in but actually acquiring the expertise to go with it.”

The opportunities to achieve tremendous growth through M&A while sidestepping the lengthy development process involved in organically developing the tech are evident. However, when a traditional and risk adverse industry such as healthcare meets a fast-paced consumer-driven industry such as tech, there are inevitable challenges too.

Start-ups with cutting-edge ideas are an attractive target for legacy healthcare companies. “These are promising but not necessarily proven technologies; they sometimes work, they sometimes don’t,” points out Alan Zoccolillo, head of Baker McKenzie’s North American Healthcare Group and New York co-managing partner. “So there is a fair amount of risk in paying for what could be the next great technology which turns out not to be.”

The other hurdle faced by healthtech adopters is consumer trust in digital health. Safe data storage and GDPR is currently top of the agenda; couple this with the sensitivity that inevitably characterises the healthcare industry and the challenges are clear. “Data breaches are like large environmental catastrophes in this sector. They impact the company in a variety of ways, from a regulatory standpoint to civil liability with patients and the costs associated,” says Zoccolillo.

Whilst regulators are taking a proactive stance, and healthcare companies are navigating using new tech in a regulatory compliant way, this is still new ground. “Healthcare has long been founded on very traditional methodologies based on science, and has therefore been appropriately slow moving,” says Tim Sheppard, IQVIA’s SVP & General Manager for Northern Europe, a clinical research and health information technology company that harnesses the power of human data science for better health outcomes.

“There has been a change as the power of the patient is increasing, but I’m somewhat sceptical about how successful the tech giants will be in the healthcare industry, which is very personal. Trust is a big thing with patients, I don’t think it’s easily commoditised or made more useful by those who thrive on mass delivery.”

M&A activity in healthcare is set to reach $400bn this year. While it is not without its challenges, from securing consumer trust to safe data storage, cost cutting in care systems and consumer demand for digital healthcare devices means that the potential for rapid growth in healthtech is there. “There has been a realisation from healthcare providers that they need to be much more efficient,” adds Sheppard. “The penny has dropped, and tech is now the focus.”

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