Chips are down: Regulatory scrutiny hurts semiconductor dealmaking

Data InsightDealspeak 13 February

Chips are down: Regulatory scrutiny hurts semiconductor dealmaking

Small microchips punch far above their weight in terms of geopolitics. Wafer-thin semiconductors, which are made out of silicon and power the world’s most advanced electronics, cars and weaponry, are at the centre of a fierce trade war between the US and China. 

Tightening regulatory controls and foreign direct investment (FDI) screening have hurt dealmaking. There were just 334 global semiconductor M&A deals last year, according to Dealogic data. This is the lowest number of deals since at least 2012.

Sitting both geographically and politically in the middle of this situation, Europe accounts for around 10% of global microchip manufacturing, according to the European Commission. Meanwhile in the Middle East, US' ally Israel is also a player. 

Deal activity crashed in Europe, the Middle East and Africa (EMEA) in 2022, which saw the lowest number of semiconductor deals in the region since at least 2012. There were just 47 deals, according to Dealogic data. The total value of EUR 7.4bn, meanwhile, was the lowest since 2017, with the exception of pandemic-hit 2020.

Some announced deals have set a poor precedent for dealmakers thinking about consolidation. For example, California-based Intel Corporation [NASDAQ:INTC] agreed to acquire Israeli semiconductor firm Tower Semiconductor [NASDAQ.GS:TSEM] in a USD 5.4bn deal. A year later, the tie-up is still awaiting regulatory approval from China’s State Administration for Market Regulation (SAMR). 


The jostling for control of the chip industry from politicians on either side of the Pacific Ocean intensified last year. In August, President Biden’s administration enacted the CHIPS and Science Act, providing USD 280bn in new funding for the domestic semiconductor industry. 

Two months later, the US Commerce Department banned the export of microchips to China in an attempt to slow the modernization of its rival’s military and computing progress. In response, China announced a USD 143bn support package for its domestic chip makers.

Governments in Europe are also weighing in. Last month, the Netherlands, alongside Japan, agreed with Washington to restrict exports of advanced chip-making machinery to China. The Netherlands is home to ASML [NASDAQ:ASML], the industry’s largest manufacturer of lithography systems, a fundamental component to semiconductor production.

And in February, Taiwanese silicon wafer maker GlobalWafers [TPE:6488] abandoned a EUR 4.1bn deal to acquire a majority stake in German polysilicon wafer supplier Siltronic [ETR:WAF] following reluctance from the German FDI body to clear the deal.

Chipping away

However, some significant deals in EMEA did receive regulatory clearance, including Massachusetts-based semiconductor equipment maker MKS Instruments’ [NASDAQ:MKSI] EUR 5.1bn purchase of German chemicals company Atotech [NYSE:ATC] in 2021.

And European dealmakers will surely be optimistic of further support following the European Commission’s European Chips Act, published last February. The act aims to strengthen the European ecosystem by generating more than EUR 43bn in public and private investment into next-generation technologies and semiconductor research and innovation by 2030.

With the tug of war between the world’s two modern superpowers intensifying, there is still scope for dealmaking in the global semiconductor industry. Several transactions in EMEA are currently in the regulatory bottleneck waiting for the green light, such as Yageo Corporation [TPE:2327]’s EUR 686m tie-up with France-based Schneider Electric's [EPA:SU] Telemecanique Sensors in October. If regulators can find a way to speed up screening processes for these deals, 2023 might prove a more fruitful year for semiconductor dealmakers.

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