What the heck is CFIUS, anyway?
A few of you have written to ask why the approval of a US government agency called CFIUS held up the AVEVA/Schneider merger, and to ask why a US government body even cared about the combination of a UK-listed company and a Paris-listed company. Great questions; here’s what I’ve been able to learn.
CFIUS is the Committee on Foreign Investment in the United States, part of the US Treasury Department. It looks at combinations of US and foreign entities, trying to determine whether shifting control of a US business to a foreign company could affect US national security. So, for example, when Hexagon bought Intergraph, CFIUS had to approve because Intergraph’s PPM business sold CAD/CAM to US Navy shipyards and the naval architects and commercial yards that support the government, and the GIS business sold security solutions to police, fire and military organizations. You might remember that part of that GIS business had to be separated from the rest; I think that was CFIUS-related but can’t find any documentation on it.
CFIUS also investigated and approved Dassault Systèmes buying Accelrys. So the AVEVA/Schneider deal wasn’t in any way singled out –in fact, if you’re following the news, you’ll have seen that CFIUS is looking at the possibility of a hostile takeover of Qualcomm, a huge US chip makers, by Broadcom, based in Singapore. These reviews apparently happens often and it’s just now making headlines because of the types of deals (Qualcomm) and affects deal timing (AVEVA).
CFIUS is a cross-government panel that includes representatives from the US departments of Commerce, Defense, Energy, Justice, State, and Homeland Security and is chaired by the treasury secretary. One article I read also includes the U.S. Trade Representative and the head of the White House’s Office of Science and Technology Policy as members. Not matter exactly; it’s a broad group of heavy hitters, with many different concerns about the US’ economic competitiveness and security.
You can see what CFIUS requires from companies that have to submit a deal for review here, however, none of it is ever made public so we can’t actually tell what’s being asked or answered. According to the New York Times, CFIUS has the “authority to intervene and review pending or completed transactions, without being asked by any of the companies involved, if members of the committee think a deal that could raise national security concerns”. If a deal is seen as affecting US security interests, CFIUS sends that info to the President who can then force a deal to be cancelled. (Scary, that.) As far as I can tell, though, it rarely comes to that as the companies voluntarily cancel the deal. (And how “voluntary” is that? Also scary.)
It’s an interesting counterpoint to the open source, co-develop, freely-shared ethos prevalent in a lot of IT today. Reuters says that CFIUS may be using its powers to prevent China and others from investing in AI, machine learning and other “cutting-edge technologies developed in the United States could be used by China to bolster its military capabilities and perhaps even push it ahead in strategic industries … [and that] joint ventures, minority stakes and early-stage investments in start-ups” aren’t subject to CFIUS reviews and therefore could endanger national security and competitiveness. Reuters singles out China, but the same argument could be made for any country or investor group that’s seeking a military or economic advantage. TechCrunch has a great history of CFIUS, given that very little is made public about the body’s deliberations.
Back to our little patch. As products get more complex, merging software, hardware, communications and other technology in even the simplest device, figuring out what’s sensitive and required for national security just gets tougher. Our industry relies on innovation, on people with good ideas and no money, who need venture capital to bring their ideas to market. Some of that funding comes from outside the US; will CFIUS step in to prevent those deals from happening? What impact might that have? I don’t know, since it’s difficult to trace the layers of VC funds back to US or international investors. It would at the least be chilling to have deals delayed because of a CFIUS review.
So, was AVEVA/Schneider singled out? Nope. Standard procedure since both have US-based businesses. Will future deals have to go through CFIUS? Yup — and it’s going to get more difficult and take longer, as protectionist and security-concerned legislators want to add to what CFIUS reviews.