Photographer: Tomohiro Ohsumi/Bloomberg

politics

Chinese-Backed Buyout Firm Sours on U.S. After Trump Snubs Deal

  • Canyon Bridge sees government links as a major benefit
  • It recently bought U.K. chipmaker Imagination for $712 million

At a time when Chinese investors are going out of their way to play down government connections, one private equity fund is openly proud of its links to the state.

Canyon Bridge Capital Partners LLC sees its government backing as a unique selling point in deals, a way to show targets that it can hook up companies to customers in China. After being blocked by President Donald Trump on a deal, it’s now opening up to new investors as it backs small and medium-sized technology companies outside the country.

Trump killed Canyon Bridge’s $1.3 billion offer for Lattice Semiconductor Corp. on security concerns, acting on the recommendation of the Committee on Foreign Investment in the U.S. That’s led the fund to seek deals in other parts of the world, such as a successful bid for graphics chip designer Imagination Technologies Group Plc, to avoid the scrutiny and politics of buying into American companies.

“What we learned is to be much more careful about how we analyze the regulatory environment, where regulations are being implemented in a much more politicized fashion,” said Peter Kuo, a partner of the Palo Alto-based fund. “We certainly don’t believe that in today’s environment you can really get a fair and transparent hearing or treatment by CFIUS.”

Canyon Bridge, which now controls $1.5 billion of assets, has a sole current investor in China Venture Capital Fund Co., a unit of China Reform Holdings Corp., according to Kuo. That in turn is one of the almost 100 enterprises directly controlled by the State-owned Assets Supervision and Administration Commission, which sits directly under the State Council, the nation’s cabinet.

“In this very politicized environment we have, the attention will be pointed to the association with the Chinese government,” Kuo said. “We actually do think it is a major benefit.”

As an outfit with connections to the highest levels of the state administration, Canyon Bridge is unlikely to run afoul of Beijing’s clampdown on capital flight. Its interest in chips meshes with the wishes of President Xi Jinping, who wants to build up the domestic industry and reduce China’s reliance on some $200 billion of annual semiconductor imports. Beijing envisions spending about $150 billion in a decade to achieve a leading position in semiconductors, an ambitious plan that the U.S. warns could harm American interests.

Kuo, an M&A banker at Lazard Ltd. before joining Canyon Bridge, is targeting new investors, including family offices, sovereign wealth and pension funds. Still, ties to state capital will remain strong.

The 500 million pound ($712 million) deal for U.K.-based Imagination was announced in September, just days after Trump blocked the Lattice acquisition, and completed about two months later. Imagination sold its U.S. business before the Canyon Bridge purchase closed, in part to avoid having to go through the CFIUS process again.

The purchase came after Imagination, a designer of graphics chips, had plunged when major customer Apple Inc. spurned its products in favor of using its own technology in future phones, tablets and watches.

“Imagination definitely has space to grow in China, where the surging demand for semiconductor technologies is giving global IP companies new business opportunities every day," said Roger Sheng, a chip analyst with Gartner Inc. “It put most of its focus on supplying Apple in the past and neglected demands from China and other customers.”

Imagination Chief Executive Officer Andrew Heath said the company is talking with Tsinghua Unigroup Co.’s Spreadtrum and Taiwan’s MediaTek Inc. about producing mid-tier mobile processors, as well as Chinese smartphone vendors such as Oppo, Vivo, Xiaomi Corp. and Huawei Technologies Co.

“What Canyon Bridge brings is obviously very solid foundations for the business,” Heath said. “Having a strong backing from Canyon Bridge and their connections in China is always helpful.”

— With assistance by Yuan Gao

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