M&A in Taiwan

In 2000, since “Financial Holding Company Act” and “Financial Institutions Merger Act” were passed, the merger and acquisition between financial institutions became popular in Taiwan.  After several years, since “Company Act” was amended substantially and “Business Mergers and Acquisitions Act” was passed, there was another wave of industry merger and acquisition leaded by electronics industry.  This wave suddenly stopped in about 2008 because of the global financial crisis.  In the years after 2009, the merger and acquisition activities of Taiwan enterprises were also rare due to the sluggish economic recovery and insufficient dynamics.

In the recent years, with the booming of the Asia financial market, the government encouraged the regionalization of the financial industry, loosened the restrictions of merger and acquisition and reinvestment, and inspired financial institutions into expanding themselves in Asia.  The tide of merger and acquisition in financial industry seemed recovering.  However, the tide in this time was focused on foreign merger and acquisition.  For example, CTBC Bank acquired Tokyo Star Bank in Japan, Cathay Life Insurance purchased the shares of Bank Mayapada in Indonesia, Yuanta Securities acquired Toyo Securities in South Korea, etc.  In addition, with the transformation of Mainland China from the factory of the world to the market of the world and the mighty arrival of the red supply chain, the merger and acquisition between electronics enterprises reached another peak.  For example, the war between Advanced Semiconductor Engineering, Foxconn Technology, Spil and Tsinghua Unigroup, the private placement transaction between Tsinghua Unigroup and Powertech Technology as well as between Tsinghua Unigroup and ChipMOS Technologies, and the buyout by Micron Technology of Inotera Memories, etc.  There were solicited takeover, unsolicited (hostile) takeover, strategic alliance by holding of minority interest, and buyout and going-private transaction amounting to more than NT$100 billion.  The waves of merger and acquisition show that merger and acquisition has become an ineluctable issue in the operation of business by enterprises nowadays.

Causes of Merger and Acquisition

• Internal Growth and External Growth

At the early stage after establishment of enterprises, most of the enterprises seek to grow stably internally.  Some of them thrive gradually, while some of them wither gradually.  In the past, many Taiwan enterprises focused on manufacture and cost control, through which they could grow and thrive after a long period of time.  By this way, they indeed could successfully develop in a certain field and expand to another region, even resulting in becoming industry leaders in the world.  However, the world nowadays is a flattened and globalized one, and competition is internationalized, so it may not be correct for Taiwan enterprises to continue to depend on relatively slow self-growth for the purpose of competing with the world-class enterprises in the globe.  Globalized and internationalized competition impels Taiwan enterprises to strive domestic and foreign growth simultaneously, and merger and acquisition is usually the direct and convenient short cut for achieving the growth goal of enterprises.

Even for a successfully developed enterprise, with the limitation of its own manpower and material resources and the time required for self-growth, the speed of self-growth within the given extent is normally insufficient to satisfy the demand for enhancing the competitive power.  In the era of globalization, to become a world-class enterprise, enterprises should walk with two feet where the left foot is internal growth (self-growth), and the right foot is external growth (merger and acquisition).  Only by this means can an enterprise compete at international level.

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