Privacy Is a Key to Unlock China's U.S. Deals
(Bloomberg Opinion) -- America is easing open the gates for Chinese acquirers.
A key (and opaque) U.S. national security panel gave a real estate firm the all-clear to purchase Genworth Financial Inc., an insurer specializing in long-term care, after the Beijing-based company gave assurances on data privacy.
The weekend nod from the Committee on Foreign Investment in the U.S. for China Oceanwide Holdings Group Co., a Hong Kong unit of Oceanwide Holdings Co., to take over Genworth pushes forward what looks like the biggest China deal since Donald Trump became president. It also gives hope for other M&A.
While further regulatory approvals are needed, the endorsement from CFIUS after multiple refilings since Oceanwide signed the deal in October 2016 will cheer bankers and mainland firms struggling to crack national-security scrutiny under Trump. The concession that secured CFIUS’s goodwill was a pledge that personal data of Genworth’s American policyholders will sit with a U.S.-based third-party service provider.
But an obsession with potential Chinese control of data has been a sticking point under Trump and effectively froze acquisitions in the last year and a half. For example, Jack Ma’s Ant Financial abandoned its biggest U.S. deal, a plan to buy MoneyGram International Inc., after failing to persuade CFIUS that information on U.S. military personnel who use the service would be safe.
For Genworth, the timing is propitious: Oceanwide has promised a $1.5 billion cash infusion as the insurer struggles with declining revenue. Its long-term care business is grappling with policyholders living longer, while investment income is being squeezed by low interest rates, forcing providers to raise premiums.
China Oceanwide wins, too. Its real estate core needs a shakeup, with funding crimped by Beijing’s deleveraging campaign, as the company takes on a huge commercial complex in Los Angeles. Long-term insurance may be coming off its peak in the U.S., but it’s sure to grow in China as the nation only now comes to terms with its aging population. The government may eventually push for long-term care cover as it builds out the insurance industry.
Oceanwide Chairman Lu Zhiqiang acknowledged that point in his statement outlining CFIUS: The deal will help “bring Genworth’s insurance expertise to China.”
None of this suggests that Chinese acquirers will suddenly have an easy time in the U.S., especially where technology is involved: Washington and Beijing are at loggerheads over not just trade but also the fate of mainland telecom stars like ZTE Corp.
But there’s an important lesson here for acquirers and their bankers: Getting it right with the data of U.S. citizens should be a key lesson in any China banker’s playbook outside the tech space.
©2018 Bloomberg L.P.