TAIWAN: An Introduction to Corporate/M&A

2023 has brought about many interesting changes for the market. This year, there have been many events that may have influenced the corporate and M&A market for Taiwan jurisdiction, including turmoil in Europe and the Middle East, the existing tensions in the Taiwan Strait and between the USA and China, and the upcoming elections for Taiwan. This overview aims to provide a brief introduction to changes in the market and potential reasons behind such changes, as well as provide some general information on legislative changes that may affect potential investors looking to enter the Taiwan market.

Investment Trends in 2023  

Statistics from January to September of 2023 (as published by the Department of Investment Review, Ministry of Economic Affairs (MOEA) of Taiwan) show that inbound investments in 2023 have seen a decrease of about 7.57% compared to the same period in 2022, while outbound investments have increased by about 1.47%.

Outbound investment trends  

In analysing current industry-related news, as well as recent cases handled by the firm, the authors have come to the conclusion that outbound investments are mainly made in technology-related enterprises (including the provision of services and related wholesale). In relation to this, there have been moves made by Taiwan-listed companies, as detailed here.

One of the notable cases includes the merger and acquisition by AcBel Polytech Inc of ABB Power Conversion, a leading company in power products, systems, and services for high-end applications such as telecommunications, data centres, high-performance computing, electric vehicle charging infrastructure, and warehouse automation. This strategic investment aims at merging AcBel Polytech Inc’s current business and advantages in the power supply products with ABB Power Conversion’s vast client base and established manufacturing plants throughout the world and the USA, seeking for a vertical integration of the power supply market to provide customers a one-stop solution for power-related needs.

Another case worth noting is the acquisition by WT Microelectronics Co Ltd of Canadian company Future Electronics Inc, one of the largest distributors of electronic and electro-mechanical components in the world. This merger of two industry leaders aims to connect the current product and client base of Future Electronics Inc and WT Microelectronics Co Ltd, providing uninterrupted cross-border services, geographic diversification, and a full range of products, application engineering expertise, and logistics management excellence to global customers.

The two above-mentioned cases both follow the same framework: in this age of globalisation, merely providing services and products in a localised manner is insufficient for a business and, with fast-changing technology bringing the world closer than ever before, businesses in related industries will slowly migrate to a system where one individual business may be able to provide vertical integration of the needs for customers around the globe. The authors therefore predict a trend whereby companies relying heavily on technology will be merging in the near future and, with Taiwan being a huge competitor in this industry, believe that other Taiwanese companies will follow suit in outbound acquisition following the success of AcBel Polytech Inc and WT Microelectronics Co Ltd.

Potential reasons for decrease in inbound investments 

The decrease in inbound investments may be due to a change in market supply and an attempt at de-risk by Taiwanese manufacturing companies. With the rising tensions in the Taiwan Strait, the recent uncertainties relating to the political and policy-related changes in China, as well the tensions between the USA and China, it is logical for manufacturers relying heavily on China’s supply chains and manufacturing power to turn their heads towards other areas.

This was demonstrated in the past, when Taiwan Semiconductor Manufacturing Co – a huge player in the semiconductor manufacturing and design business – explored options and expanded its operations outside Taiwan, opening new fabs in Japan and the USA. One of the biggest changes was Taiwan Semiconductor Manufacturing Co’s establishment of a plant in Phoenix, Arizona in the USA, where there is an existing ecosystem of semiconductor manufacturing.

Along the same lines of thought, Taiwanese multinational electronics contract manufacturer Foxconn has turned its eye to South-East Asia – particularly Malaysia – to establish its manufacturing plants. The reason behind this shift to the South-East Asian region is not hard to see, as manufacturing in South-East Asia will not only lower the costs of production but would also allow the company to deviate from the US–China competition and conflicts. Further, for companies that rely heavily on supply chains for components of products, moving into the South-East Asian region provides a chance for companies to diversify their existing supply chains.

So long as ongoing tensions in the Taiwan Strait and between the USA and China exist, it is only reasonable to expect manufacturers to search for alternative supply chains so as to mitigate a risk should ongoing tensions lead to a break in production. Also, with the South-East Asia region’s rise as a new hub for lower-cost supply chains, it is estimated that more and more companies will seek to either move their existing manufacturing plants over to or establish new plants in the South-East Asia region.

Changes in Relevant Laws and Regulations 

Amendment to the Business Mergers and Acquisitions Act takes effect

In 2022, the Executive Yuan published and passed an amendment to the Business Mergers and Acquisitions Act, and the amendment has been in effect since 15 December 2022. To recap, the amendment:

 - requires current directors of the board to declare any material interests and the reasons behind either their approval of or objection to the merger;

 - opens up the restriction regarding the requirement of approval of the shareholders’ meeting, so that merger deals where the consideration does not exceed 20% of the net value of the company may be decided by the board of directors alone; and

 - allows for the cost of the intangible assets obtained through the merger be amortised within a set range of time and also allows start-up entrepreneurs to pay income tax on the consideration received from selling the start-up company within the next three years.

Businesses seeking to merge or acquire other businesses should take this amendment into account before planning any related deals.

Reorganisation of governmental departments  

The Executive Yuan published and passed the reorganisation of the Ministry of Economic Affairs (MOEA) on 16 May 2023, whereby the MOEA will be establishing five new administrations, including the Administration of Commerce, Industrial Development Administration, International Trade Administration, Energy Administration, and Small and Medium Enterprise and Start-up Administration. In addition to enhancing budgetary and personnel independence, this reorganisation seeks to increase the authority, responsibility and capacity of business service industry management – thereby streamlining the organisation of the MOEA, which is expected to be more efficient in serving the public.

As part of this reorganisation, the former Investment Commission of the MOEA has now been renamed the Department of Investment Review. With global trends moving towards greater diligence in investment management and review, the business of the Department of Investment Review is expected to grow in importance, and this change in organisation aims to bring about clearer guidelines and guidance for investors looking to either invest in Taiwan or invest outwards.

In conclusion, the government is making a noticeable effort to provide better service to the public and to create a friendlier environment overall for foreign investors. As a result, the continued growth of the M&A market can be expected in 2024, as certain investment barriers may be removed.