National security emerges as major dealbreaker in cross-border M&As

Cross-border mergers and acquisitions are no longer judged solely by strategic fit and valuation. Around the world, national security reviews—often complex and opaque—are reshaping deal timelines, economics, and outcomes. Private equity firms in particular are bracing for prolonged regulatory scrutiny, tougher remedies, and the real possibility that even well-crafted transactions may be delayed, reworked, or ultimately abandoned.

Governments are intervening more forcefully, citing the protection of critical technologies, data sovereignty, and supply chain resilience. As a result, bidders are increasingly compelled to accept stringent conditions to secure approval, or to walk away late in the process. South Korean dealmakers are seeing the same headwinds, losing momentum in efforts to scale, streamline, or restructure portfolios.

Security lens reshapes global dealmaking

A growing list of transactions highlights the reach of these reviews across sectors:

• China recently blocked Meta’s proposed $2 billion purchase of Manus, a Singapore-based artificial intelligence startup with Chinese links, underscoring heightened sensitivity around data and next-generation technologies.
• In 2021, the planned $1.4 billion acquisition of Korea’s Magnachip by China-based private equity firm Wise Road Capital collapsed after U.S. authorities intervened, citing Magnachip’s U.S. listing—widely viewed as a security-driven move amid efforts to curb China’s tech ascendancy.
• Japan’s Nippon Steel secured its long-pursued takeover of U.S. Steel only after accepting exceptional oversight provisions requested by Washington, illustrating the “geopolitical premium” now embedded in industrial deals.
• Outside heavy industry, data and platform plays are also in focus: Naver’s move to unwind its Line Yahoo ties in Japan and the push for a TikTok spin-off in the U.S. reflect intensifying concerns over cybersecurity and data localization.
• MBK Partners reportedly withdrew its pursuit of Japan’s Makino Milling Machine after regulatory resistance. With machine tools deemed strategically sensitive due to potential defense applications, authorities pressed MBK to step back.
• MBK previously faced controversy in its attempted sale of Doosan Machine Tools in 2024 amid claims it was steering a strategic Korean asset toward Chinese ownership. MBK countered that no detailed talks had occurred with Chinese bidders, and the company was ultimately sold to DN Automotive and renamed DN Solutions.
• National security became a tactical lever in the Korea Zinc dispute involving the MBK–Young Poong alliance, with the smelter moving to protect technologies under rules governing overseas transfers.

Even when the buyer is headquartered in Korea, a globally diversified investor base can invite heightened review. For private equity sponsors, the composition of limited partners, co-investors, and downstream buyers now matters as much as the headline jurisdiction and sector.

Why the bar is rising

Several forces are driving the escalation. First, semiconductors, machine tools, and advanced manufacturing have renewed strategic importance as dual-use technologies. Second, data control has become a core sovereignty issue, putting platforms, AI developers, and cloud-enabled services under a bright spotlight. Third, extraterritorial enforcement—whether through securities listings, operational footprints, or data flows—broadens the jurisdictions that can claim a right to review a deal. Finally, geopolitical competition has expanded the scope of “critical” industries and lowered authorities’ tolerance for perceived risk.

What dealmakers should do now

In this environment, a robust regulatory game plan is essential from day one. Practical steps include:

• Map all potential review regimes early and sequence filings to avoid bottlenecks.
• Build extended timelines and interim operating covenants into deal documentation.
• Define clear termination rights, reverse break fees, and risk-sharing if approvals fail.
• Craft targeted remedies upfront (e.g., governance rights, data ring-fencing, divestitures).
• Structure bidder groups and financing to minimize sensitive foreign influence perceptions.
• Closely manage communications to preempt political or public pushback.

Industry advisers note that while safeguards like longer long-stop dates and tailored conditions precedent have long existed, they have become mission-critical as security reviews lengthen and deepen. Disputes stemming from failed approvals or protracted processes are also becoming more common, reinforcing the need for precise drafting and contingency planning.

The new M&A baseline

National security has become a central gating item for cross-border M&A. From AI to industrial machinery and digital platforms, acquirers must treat regulatory strategy as a core pillar of deal design—not an afterthought. For private equity firms and strategic buyers alike, those that anticipate security concerns, price the geopolitical premium, and prepare credible remedies will have the best chance of getting deals across the line.