Software, Connectivity, Data and Fintech Dominate M&A in Silicon Valley | Allen & Overy LLP


The importance of data

When it comes to Silicon Valley transactions, the exchange of data, what is shared and what is not, can be almost as important as the financial terms of the transaction.

A large part of this is due to the rapid increase in the amount of data we share and the value businesses can derive from it by inventing new ways to monetize their usage or improve the experience for their users.

But it is also the result of increasingly strict regulations on the use, storage and distribution of data. Global data obligations are becoming increasingly complex as key countries deepen their regulatory frameworks and harmonization becomes increasingly difficult.

In Europe, the EU’s General Data Protection Regulation (GDPR) guided the agenda. With the introduction of the California Consumer Privacy Act (CCPA) and the passage of the California Privacy Rights Act which will come into full force over the next 15 months, U.S. law is moving in similar directions on key issues such as rights to:

  • correct inaccurate information
  • set limits on the amount of data collected on individuals
  • restrict the additional purposes for which the data may be used in the future

In Asia, a slew of new data regulations in China highlight its approach to data. This was particularly accentuated by the investigation of Didi’s data practices.

Many tech companies would like to see more harmonization, as this would reduce escalating compliance costs and complexity. But these laws differ significantly, and the dream of globally agreed rules remains distant in today’s climate.

This poses significant operational and transactional challenges for companies operating across borders, sometimes forcing them to take a jurisdiction-by-jurisdiction approach to compliance.

Economically, it would make sense to store the data in a central server farm. But in some countries, there may be a requirement that if data is collected on a national basis, that data should be stored in the country and not hosted in another jurisdiction. Localizing data in this way has significant financial implications and creates considerable complexity for those designing data governance processes and systems architecture.

Other challenges abound, including how companies manage and account for the data they hold in countries where the state requires much greater access to personal information than would be permitted elsewhere.

As part of an agreement, this marks a significant change. Ten years ago, it would have been inconceivable that data considerations could derail a merger and acquisition deal. Today he could very well.

Global demand for crisps is increasing

Semiconductor supply shortages have become a major challenge for tech companies this year and the problems look set to persist.

It is because of the surge in demand. The Semiconductor Industry Association said global year-on-year chip sales rose more than 29 percent to $ 44.5 billion in June this year.

Supply chain disruptions, in part exacerbated by the trade standoff and political tensions between the United States and China, have resulted in significant delays in getting products from the manufacturer to market.

In addition, semiconductors are now fully at the center of the concerns of governments and antitrust regulators as an important strategic concern with the potential to impinge on national security.

Any attempt to buy from a chipmaker is subject to scrutiny in many jurisdictions regardless of size, as we have seen with Nexperia’s attempted takeover of Newport Wafer Fab in Wales, a Chinese company based in the Netherlands.

For this reason, efforts to address the chip shortage are more likely to involve supply chain engineering and trade deals to secure materials and manufacturing capacity rather than strategic transactions, such as mergers and acquisitions.

Cybersecurity – transactions and due diligence

The pandemic has exposed major weaknesses in the information systems of businesses and governments with a huge spike in serious cyber attacks.

But, as businesses across industries undergo digital transformation, cybersecurity is prompting stricter actions from regulators as more organizations – some in critical areas such as energy supply – grow. become the target of attacks.

Traders in any industry now need to perform much more in-depth and in-depth vendor due diligence when it comes to cyber risks.

However, the weaknesses exposed during the pandemic, with a hybrid workforce challenging the old notion of an IT fortress protecting corporate security, had another effect.

This year has seen an explosion of investment in new computer technologies, such as so-called “zero trust” systems, both by venture capital funds and by SEs and other financial investors.

Notable offers include:

  • Bain’s acquisition of ExtraHop for $ 900 million
  • TPG’s $ 1.4 billion deal to buy Thycotic, which it immediately merged with Centrify, another recent cybersecurity investment

We expect this activity to continue.

Trade tensions between China and the United States persist

Hopes that the Biden administration will usher in a new era of warm trade relations between the United States and China now appear particularly naive. The complexity of the relationship, including the rivalry for technological leadership and human rights issues, complicates the fact that the two countries depend on an interconnected supply chain. The Committee on Foreign Investment in the United States (CFIUS) remains a major obstacle to investment in the United States Meanwhile, China continues to woo foreign investment even as it embarks on the overhaul of its domestic environment through initiatives such as Common Prosperity, national Big Tech antitrust actions and a series of new regulatory actions. In the IPO space, Hong Kong appears to be the winner for Chinese companies looking to enter traditional US markets.

Outlook for the valley

Silicon Valley remains not only a driving force in global technology transactions, but an important indicator of the opportunities and challenges facing the industry globally.

The evidence so far this year is that investors remain very confident and ready to deploy increasing amounts of capital in the sector. We expect the Valley and, by extension, the global tech market to continue to dominate the M&A rankings in the coming months.

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