Foreign Investment in US Photonics Technologies


Significant changes to Committee for Foreign Investment in US (CFIUS) review process expand its jurisdiction to new types of transactions and change the timeline and procedures for seeking approval for a transaction from CFIUS. The implications for photonics technology companies are considerable.

Foreign Investment Risk Review Modernization Act

The executive order to block Broadcom’s (Singapore) acquisition of Qualcomm (US), March 12, 2018, is an unprecedented expansion of CFIUS to use its authority to block involvement by foreign buyers in a US critical technology market on national security grounds.

“Foreign Investment Risk Review Modernization Act” (FIRRMA), effective November 10, 2018, further expands CFIUS jurisdiction to non-controlling foreign investment into US businesses in possession of “critical technologies.”

On October 10, 2018, U.S. Department of the Treasury also releases interim regulations in accordance with FIRMMA that implement a pilot program relating to foreign investment reviews in certain US businesses by CFIUS. It expands CFIUS’s jurisdiction and introduces mandatory CFIUS filings for certain noncontrolling investments involving critical technologies. It may require filings ahead of closing, minority direct investments by foreign entities, minority limited partners in U.S. funds, and foreign co-investors with a noncontrolling stake in a US business.

Identified “Critical Technologies”

27 industries were specifically identified where the threat of erosion of technological superiority from foreign direct investment requires immediate action, including the following relevant to photonics.

  • Optical Instrument and Lens Manufacturing NAICS: 333314
  • Other Guided Missile and Space Vehicle Parts and Auxiliary Equipment Manufacturing NAICS: 336419
  • Research and Development in Nanotechnology NAICS: 541713
  • Search, Detection, Navigation, Guidance, Aeronautical, and Nautical System and Instrument Manufacturing NAICS: 334511
  • Semiconductor and Related Device Manufacturing NAICS: 334413

China Investment in US Photonics Companies

2019 marks 40 years since the establishment of diplomatic relations between the United States and China. Bilateral trade and investment between the two countries has grown exponentially from $5billion in 1980 to $710billion in 2017. Yet, today, trade tensions and concerns over the political influence of the other are stressing relations and fueling government regulations from both sides.

China investors and corporations provided and continue to provide growth capital and exit opportunities for US photonics technology companies. From 2015 to 2018, CERES researched 79 transactions valued at more than $6.7billion.

China Investments & Acquisitions of US Photonics Companies

On segmentation of these 79 transactions, the analysis supports the thesis that FINRA regulations are dampening China acquisition and investment in US photonics technology companies serving Defense, Security and Sensing markets – as well as Information Technology markets, such as Communications and Displays.

China Investments & Acquisitions of US Photonics Companies

CERES researched 27 publicly announced China investments and acquisitions of US photonics companies in 2018. it appears that China investment and acquisition of US biophotonics technology companies, such as those supplying instrumentation for life sciences research, gene sequencing, medical diagnostics and medical imaging remain steady or are increasing.

Photonics
Vesper Technologies Inc.
GMEMS Technologies, Inc.
Orbbec 3D Technology International Inc.
Aqueti, Incorporated

Information Technology
GOQii Inc.
Magic Leap, Inc.
TransLux Corporation (OTCPK:TNLX)
Lightelligence, Inc.
PrecisionHawk Inc.

Defense Security and Sensing
JINGCHI CORP
Sensoro Inc.
Cherry Labs Inc.
Lunewave, Inc. 

Biophotonics
RADLogics Inc.
LipoMedics, Inc.
Profusa, Inc.
DiaCarta Inc.
Universal Sequencing Technology Corp.
Cytek Biosciences, Inc.
Boost Biomes, Inc.
SomaLogic, Inc.
Tissue Analytics, Inc.
Promaxo, Inc.
Ultivue, Inc.
Cameras Vision, Inc.
Mevion Medical Systems, Inc.

Implications for Investors, Sellers and Buyers

For photonics technology companies seeking growth capital, a buyer or partnerships, such as joint ventures, these significant changes may shrink the pool of opportunities or at the very least, may add substantial risk and complexities in closing a transaction with a foreign partner.

Foreign strategic buyers, namely in China, may opt to put their capital to work with European or Chinese photonics technology companies.

US investment funds are being advised to review and revise agreements with non-controlling, foreign co-investors. This may discourage these US investment funds from investing in photonics technology companies where it is at all unclear if the photonics technology will be deemed “critical technology.”

Finally, given CFIUS’s heavy current caseload, it is unclear how long it will take to implement the significant changes to CFIUS’s jurisdiction and process. In the meantime, stakeholders at home in US and abroad may operate under high levels of uncertainty and risk.

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Reference “Significant Changes to CFIUS Review Process and Export Controls Finalized in 2019 Defense Spending Legislation”, Wilkie Farr & Gallagher LLP, Read the article


CERES sources transaction data from public sources. CERES analysis and data are subject to errors and omissions. Accuracy of information is responsibility of user.