CFIUS’ Global Reach – Users of U.S. Controlled Technology Beware

The U.S. government, and we mean the pre-Trump administration at that, has blocked an acquisition of a foreign company by another foreign company. The concern is that the target company has a U.S. presence and has access to high-end technology that is controlled by the International Trafficking in Arms Regulations (ITAR). If you are not aware of the Committee on Foreign Investment in the United States (CFIUS) now is a good time to ensure you at least know when to look it up.

Earlier this month, the President issued an Executive Order effectively blocking Fujian Grand Chip Investment Fund LP’s acquisition of Aixtron SE, a German semiconductor company with a U.S. subsidiary, Aixtron, Inc. The Executive Order was issued after CFIUS had determined that the deal posed national security  risks to the U.S. that could not be mitigated. The result was that both companies were forced to walk away from a $752 million transaction.

The Executive Order marked the third time that an acquisition has either been blocked or unwound by the President. The blocking of the Aixtron deal indicates an increased scrutiny of acquisitions involving sensitive technology with potential military application, i.e. ITAR-controlled technology.  Such scrutiny is likely to increase under the incoming Administration as members of political parties in both houses of Congress have expressed a desire to expand CFIUS’s role.

It is important to think about CFIUS in the early stages of a negotiation to acquire/sell any company with any controlled items, services, or technology/technical data. In short, it is important to anticipate any possible CFIUS issues and determine if there is a way to mitigate the government’s concerns.  While this is not a new issue, it is apparent that there is a wide jurisdictional net and broad scrutiny over certain types of deals, particularly those involving Chinese control.