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Q:What policies and regulations are relevant to M&A and other financial activities in Taiwan?
A:In Taiwan, the laws and regulations relevant to M&A activities are found in a number of statutes including:
  • the Business Mergers and Acquisitions Act (‘BMAA’);
  • the Company Act;
  • the Securities and Exchange Act;
  • the Statute for Upgrading Industries;
  • the Fair Trade Act;
  • the Labor Standards Act;
  • the Statute For Investment By Foreign Nationals;
  • the Financial Institutions Merger Act; and
  • the Financial Holding Company Act.
For more details, please refer to our Taiwan M&A Policy and Activity page

Q:Why does MAPECT emphasize the importance of promoting cross-strait deals?

A:China's M&A activity remained resilient in 2008 despite the global financial meltdown, making it the best performer in the Asia region, according to information company Thomson Reuters. M&A activity in the country was at an all-time high of $159.6 billion worth of deals last year, 44 percent more than in 2007, compared with the year-on-year 11.1 percent fall in Asia, excluding Japan, Thomson Reuters said in a report.

"China was the only country in the region to experience growth in such a tumultuous environment, and it's also the most targeted nation in Asia with a 26.9 percent market share," the report pointed out.

The country's inbound activity posted a 34.2 percent year-on-year increase, and made China a global investment haven. Cross-border M&A activity rose 51.1 percent from a year ago to $78.4 billion worth of deals in 2008.

"Protection policies to set barriers for cross-border M&As have been partly pared when facing the economic meltdown, which helped boost the outbound M&A deals for Chinese companies," said Xu Wenfei, an analyst at Beijing-based investment research and consulting firm China Venture.

With these factors in mind and the impending economic cooperation framework agreement (ECFA) with China, Taiwan is uniquely positioned to become a major player in the Asian M&A and PE industry in the near future. Many Taiwanese businesses have set up operations in China in the last several decades, and conversely many Chinese firms have taken interest in Taiwanese industries in recent years. By gradually improving business relations with China, Taiwan will have the invaluable opportunity to reap many economic benefits in the future. According to Asia Private Equity Review (APER), as political history in the Greater China region enters a new era and economic assimilation begins to gather pace, PE capital will play a crucial role as a bridge between enterprises on both sides of the Taiwan Strait.

Q:Which Taiwanese industries have seen the most M&A and PE activity?
A:M&A and PE activity in Taiwan are currently most common in the IT, electronics, construction, and communications sectors.

Q:Which sectors are accessible by mainland Chinese investors and firms?

A:Currently the Taiwanese government regulates which sectors and industries are accessible to Chinese investors, 192 types of Chinese investment in the manufacturing, service, and public construction sectors including the manufacture of passive electronic components, telecommunication services, and port development. Previously before July 2009, mainland Chinese investors had been prohibited from investing in Taiwan.

In the manufacturing industry, automobile, motorcycle, rubber, plastics and textile companies can now receive Chinese investment money, as can companies in computer peripherals, home appliances and passive electronic components sectors. However, herbal, construction, liquid crystal display panel and wafer foundry companies remain off-limits to mainland investment. As for the service industry, retailers and wholesalers of daily necessities will be permitted entry, as will aviation and shipping enterprises. Mainland companies can invest in type II telecommunications businesses, but maximum ownership is limited to no more than 50 percent.

Mainland investors will be allowed to invest in infrastructure projects, but are prohibited from bidding for construction contracts. Investment in civil aviation terminals and facilities is limited to public areas such as aviation halls, boarding and luggage areas, and other non-restricted areas. Ownership of aviation terminals and ports will also be limited to no more than 50 percent. The minimum requirement for investment in ports is set at a range between NT$1 billion (US$30 million) and NT$2.5 billion.

Military-related mainland enterprises are prohibited from investing in the island. In addition, mainland enterprises are not allowed to invest in monopolies or in businesses that could affect national security. Enterprises with capital in excess of NT$80 million, and which have received investment money from the mainland, will have to file annual financial statements.

These regulations above are continually revisited by the government and we expect further investment liberalization in the upcoming years.

Q:Why should we consider private equity in Taiwan?

A:Successful businesses in the region built by entrepreneurs are being transformed into long-term market leaders with the help of private equity firm’s injection of global management talent and experienced professionals to take those businesses to the next level. In Taiwan, the entire cable industry was transformed with the support of private equity. Today the cable industry is dominated by players who were significantly helped by private equity involvement, and the banking industry has also grown from lessons learned from the involvement of private equity financing.

Therefore, private equity can bring value to a number of industries and can improve the competitiveness of Taiwanese companies overseas. Succeeding in Taiwan is directly linked to job creation, and private equity firms work to unlock value to ultimately sustain and create employment opportunities.

Q:Can private equity investments cause harm to Taiwan's economic and financial systems?

A:Although there is a perception that private equity is a short-term speculative investment, nothing could be further from the truth. Private equity investment typically lasts for several years, and frequently the equity investors make additional investments in the firm. They also bring in international expertise to help upgrade its operations, and these individuals often choose to remain after the company is sold. Private equity investment not only adds value to the firms purchased, but may cause lenders and investors to upgrade their valuations of an entire industry, and introduce new lending and investment practices, as actually occurred in Taiwan's cable industry after a major private equity investment case.

Private equity investment may also provide access to global marketing and production networks, bringing additional value to the firm and to the local economy. Furthermore, the new investment may enable the firm to retain its technology and its staff in Taiwan. Of course, private equity investment is strictly regulated by Taiwan's legal framework.

In summary, private equity is a form of investment in the local economy that helps stimulate economic growth and upgrade the national technological and skill base, for greater success in today's globalized, technology-driven economic environment.

Q:Well over 90% of Taiwan's companies are small- and medium-sized enterprises. Can private equity investment help them?

A:In recent years many private equity investment funds have been set up to specialize in investing in SMEs. Many of these focus on SMEs in emerging markets, where local banks have developed specialized loan and investment programs targeting SMEs.

For example, in India ICICI bank has developed a mix of loans and services aimed at supporting global investment in Indian SMEs. In Australia sophisticated companies like Capstart market SMEs to global investors. Global banks like HSBC also have private equity programs aimed at SMEs. Global funds such as Aureos capital search for SME investment opportunities in emerging markets, while global organizations such as the World Bank, the British Commonwealth, and ASEAN lead initiatives to stimulate private investment in SMEs.

Taiwan's SMEs, many of which have world-class technologies and offer investment opportunities, can locate new sources of investment funding, new routes to global markets, and new R&D and management abilities by accessing the resources that other countries are already using. In the race for economic leadership in the 21st century, Taiwan cannot afford to fall behind.

Q:What is the state of the indigenous PE marketplace? What firms exist?
A:One major contribution of foreign private equity firms in the Taiwan marketplace has been the development of a local private equity market that is raising local money to support domestic industries with capitalization and other developmental needs.  Among the domestic firms that have evolved include WK Associates, Top Taiwan Financial Consulting Group, and Fortune Consulting Group.


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