A pretty good songster named Paul McCartney sang once that “in the end, the love you take is equal to the love you make.”
To shift that a bit for business – because, really, Beatles lyrics are applicable to anything – the deals you take are equal to the deals you make.
And if recent news is any indicator, there’s a freeze, sudden and broad and likely long-lasting, in technology pacts of the cross-border type – specifically between China and the United States. Looks like there’ll be no making or taking in the near term.
The news most recently, and most urgently, has been that the Trump administration gave the thumbs-down to the $1.2 billion overture under which Ant Financial, the Alibaba affiliate, would have bought U.S.-based MoneyGram International.
The deal was scuttled through the scrutiny of the Committee on Foreign Investment in the United States, which looks at buyouts of U.S. firms proposed by foreign entities. The peril? Security concerns – specifically data tied to millions of accounts.
This is a far cry from the nascent days of the Donald Trump presidency, when the incoming chief executive met with Alibaba’s Jack Ma, and skies seemed sunny. They’d go on to do “great” things, said Trump.
Consider the fact that, on the table at the time, was the idea that one million U.S. firms would be able to leverage access through Alibaba to reach the coveted Chinese consumer.
In an interview with PYMNTS’ Karen Webster after the deal announcement, Alex Holmes, MoneyGram CEO, stated that “there are millions of Chinese living outside of the mainland, and whether those are students or people traveling or permanent residents living outside the country, we are excited to integrate our product and capabilities into China – especially when combined with our full connections in the rest of the world. We think that this will allow us to grow a very robust send market [in China].”
But this week, the peril as seen by lawmakers seemed to outweigh the promise as seen by the firms themselves. With the announcement that the deal was off the table, we should likely assume that this is a roadmap, of sorts, for how things might go – a roadmap that leads straight to a dead end.
The MoneyGram bid is among the highest of the high-flying deals to end ignominiously, chiefly because of the marquee name involved in eCommerce – that would be Alibaba, of course – and the reach that would have been cemented should MoneyGram have come under its considerably far-flung portfolio.
In terms of commerce, Ant Financial controls Alipay, the mobile wallet that is, well, top of wallet in China. The movement toward cross-border commerce would have been writ large, across the United States and India and elsewhere. For now, though, Ant and MoneyGram will, rather than combine, “develop initiatives” based on collaboration.
Some language in the wake of the bid scuttling is telling. As MoneyGram’s Holmes said in a statement, “the geopolitical environment has changed considerably since we first announced the proposed transaction with Ant Financial nearly a year ago. Despite our best efforts to work cooperatively with the U.S. government, it has now become clear that CFIUS [Committee on Foreign Investment in the United States] will not approve this merger.”
Yes, the environment has indeed changed. This is the second tech deal to be shot down during the Trump administration, which is still only less than a year old as of this writing. A few months ago, a Chinese-backed private equity firm was blocked from buying Lattice Semiconductor, due to security concerns. Though the purposes may be different – a hardware firm in the case of Lattice, a cross-border remittance foray in the case of Ant Financial and MoneyGram – the writing on the wall is becoming clearer.
Against a backdrop where only three China-for-U.S. deals were torpedoed over more than a quarter century previous to this year, the Trump administration is signaling that the brakes will be put on Chinese deal making on these shores, where the pace had previously quickened. In one 2016 estimate, Chinese investment here had been pegged at $46 billion, as calculated by Rhodium Group, and that tally was three times higher than the previous year.
So just as the pace was picking up, Ant had been boosting its efforts to move beyond home base, as it were, in China. Yes, the firm had made inroads into India and Japan and new areas in Asia, but had also wanted more of a U.S. presence, both in mobile and also through the physical assets of MoneyGram. The natural assumption may be that Ant looks for other foreign markets, say, in Europe. And that means that all manner of FinTechs in the U.S. can be a little bit more, well, relaxed, after it seems the juggernaut will not be at the gates quite so quickly.
But then again, short-term gains may lead to longer-term headaches. The stage is being set for cross-border deals to get ever more scrutiny, as there are bills wending their way through Congress that would boost CFIUS through increased funding, with special attention to be drawn on Chinese firms.
If the legislation comes to consideration this year, as expected, might we expect that Chinese interest will dwindle? The New York Times has noted that only 18 percent of Chinese cross-border deals through the past decade have set their sights on U.S. firms, paling in comparison to the 36 percent of acquisition targets in Europe, for example.
And for tech firms in the U.S. that have lobbied to have a more level playing field in China, the frost seen on these shores may blow ill across the miles. In September, U.S. Commerce Secretary Wilbur Ross said that access to Chinese markets remained lopsided. Should we expect it to change now?
The fizzle here may be seen to be the Ant for MoneyGram deal – but writ large, it is, well, larger – perhaps China/U.S. cross-border mashups in general. To quote Sir Paul yet again: “You never give me your money…”