Had the Yageo MBO been backed by domestic firms or funds, the same tender offer would not have required Investment Commission approval. This highlights the different treatment of foreign and domestic investors attempting buyouts.
Unfortunately, the general perception left since 2011 is that foreign private equity firms teaming up with management for buyouts is not welcomed in Taiwan.
Despite Yageo and other setbacks over the past few years, private equity firms continue to keep their eyes out for attractive Taiwanese targets. For the past decade or so, private equity targets in this region have predominantly been in China. However, an increasing number of buyers and investors have shown concerns over the high valuation and lack of transparency of many Chinese firms, and shifting government policies in China.
In comparison, Taiwanese targets are still reasonably priced and have better transparency on financial and operations overall. Headline-making deals aside, private equity players who look at middle-market targets and those who are willing to take significant minority stakes, rather than buyouts, have continued to be able to do their deals in Taiwan over the past years.
Two years has passed since Yageo, and the government, in an effort to draw more foreign investments to Taiwan, is making substantial efforts to relax regulations relating to international private equity funds coming to Taiwan. This effort includes the revamping of key legislation governing foreign investment and M&A.
In response to the general appeal to foreign investors, the foreign investment regulation will soon be amended to provide for a more transparent review and approval procedure. Timing of final decision will be significantly shortened from one to two years in the past to about two or three months.
The Executive Yuan is also revamping the M&A laws to introduce several key changes aimed at providing a more organized and less rigid regime, but at the same time, also bringing up the level of protection of minority investors. The move may make Taiwan more attractive to foreign funds (including private equity firms), something that it has not been doing well in recent years according to regional rankings.
The key proposed changes under discussion include: raising the threshold required to delist a company to a two-thirds shareholders vote; requiring establishment of a special committee to review and approve all M&As; and making more types of consideration (cash, stock, or other assets) available for use in different types of M&As (merger, spin-off, share swap etc).
There are a number of elements that paint an exciting picture of the potential new highs of inbound foreign investment to Taiwan: The upcoming relaxation of international private equity investments into Taiwan; the upcoming revamped M&A regime, coupled with major economic policies and developments of recent years — such as the slashing of corporate income tax to 17 percent, the signing of the Economic Cooperation Framework Agreement with China, the signing of the Japan-Taiwan Investment Protection Agreement and other free-trade agreements on the horizon.