Tech

Tim Culpan is a technology columnist for Bloomberg Gadfly. He previously covered technology for Bloomberg News.

It's about time Taiwan started doing deals.

The agreement by the Dutch semiconductor-equipment maker ASML to buy Taiwan's Hermes Microvision, a provider of chip-inspection tools, will have bankers licking their lips at the prospect of more deals to come. What Thursday's announcement really should do is prompt the heads of Taiwan companies to pick up the phone and call those bankers.

In the past five years, foreign acquisitions of Taiwan companies came to a paltry $14 billion with the Hermes proposal included, according to data compiled by Bloomberg.

Low Deal Flow
ASML's acquisition of Hermes would make it the third-biggest foreign takeover in Taiwan in the past five years
Source: Bloomberg

Taiwan's problem is not a shortage of quality targets, or a lack of buyers wanting to write checks. It's that the targets are abjectly uninterested in being bought out. When foreign buyers do come knocking, the chairmen -- for he's invariably male, and the puppet master -- are ready to sell off minority stakes at most. Meanwhile, the hostile route has been so rarely deployed in Asia, much less Taiwan, as to make unsolicited bids near impossible.

By the time these chairmen are ready to accept an outright takeover, their business may already be waning, and buyers scarce.

There are precedents: When the then-head of Elpida, a Japanese memory-chip maker, went to Taiwan to talk local rivals into industry consolidation, the chiefs of ProMOS and Powerchip brushed him off. Elpida accepted an offer from Micron instead. Those Taiwanese companies have been forced into humiliating delistings as they sell off assets amid a struggle to pay debts.

Hermes has avoided that fate. Three consecutive quarters of declining net income seem to have brought its board to the negotiating table. The company can sit at that table while still profitable, with a strong position in its niche. That it took so long to execute a deal, however, may be counted a failure, as ASML's offer is 45 percent below Hermes's peak in May last year -- when the stock was trading at a frothy 58 times earnings, compared with 39 times just before the ASML deal.

The other takeaway from the Hermes deal is that it signals to Taiwanese companies the existence of buyers beyond China. With the new administration of President Tsai Ing-wen likely to give more scrutiny to Chinese investment than that of her pro-mainland predecessor, any chairman hoping to get an offer needs to look further afield. Looking is exactly what they should be doing, before it's too late.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Tim Culpan in Taipei at tculpan1@bloomberg.net

To contact the editor responsible for this story:
Paul Sillitoe at psillitoe@bloomberg.net