Bain Submits To Foreign Security Review But Will Investors Benefit

Bain Capital Partners needs to submit a proposed $2.2 billion buyout of the networking equipment maker 3Com for a national security review. Government scrutiny was anticipated because of a minority stake in the deal held by a Chinese telecommunications company, Huawei Technologies, which has close ties to China’s government.

Most large private equity players have developed extensive relationships with foreign investors. After all they have the money needed to make the deals close. Have the private equity players pre-screened their partners before they make an offer. Imagine the controversy if the government disapproves of an announced deal.

So when there is a foreign partner, has the private equity firm presumed that the President of the United States is OK with the specific deal. Hmmm

When a specific foreign investor invests in a transaction that privatizes a publicly traded company there is a strategic intent. Otherwise why put up big bucks for an illiquid minority position.

While the government may determine that the United States is not getting screwed what about the investors? When these acquisitions finally go public again and a strategic investor has benefited from an information flow who will have the advantage. Foreign strategic investors will be able to hide behind a different legal structure that will not recognize governance the way a domestic investor expects.

Be careful who you do business with. Will the investor remember this when they try to take this one public again?