A wave of terminated M&A deals has swept through China’s semiconductor industry, drawing widespread market attention. Fluctuating valuations and shifting market conditions have prompted companies to reassess deal terms, highlighting the need for better multidimensional risk control in future M&A transactions.
Major cancelled deals include the proposed merger between Hygon Information Technology and Sugon; the lightning-quick termination of 3Peak’s acquisition of Aura Semiconductor only two weeks after its announcement; and VeriSilicon’s withdrawal from its plan to acquire Nuclei System Technology.
Hygon and Sugon, both listed firms backed by the Chinese Academy of Sciences, announced on 9 June 2025 a strategic restructuring through a share swap valued at RMB115.97 billion (USD16.6 billion).
However, on 9 December, the two parties announced the transaction termination, citing the large scale and number of stakeholders involved, a lengthy assessment process and significant changes in the market environment since the plan was first devised, which together rendered the conditions for implementation immature.
Sha Chaoqun, director and general manager of Hygon, further explained at an investor briefing that share prices of both companies had fluctuated significantly since mid-August due to shifts in domestic and international conditions, the overall A-share market and changes in sentiment within the AI industry.
“The success of such restructuring deals hinges not only on the transaction mechanics, but also on the sustained management of multiple layers of risk,” said Kang Xiaoyang, a senior partner at Kangda Law Firm.
Although the Hygon-Sugon deal failed to close, Kang said it nevertheless offered valuable lessons in identifying risks in complex transactions.
Kang added that risks in M&A deals were often recognised during due diligence and transaction design, but the real challenge lies in anticipating how those risks may evolve over time and assessing their eventual impact.
He said a primary uncertainty stemmed from capital market volatility driven by market sentiment or industry dynamics. Such fluctuations could push valuations beyond the expected range and undermined the pricing foundations of a deal.
Yang Feifei, a partner at Chance Bridge Law Firm, also highlighted the impact of changes in the capital markets. “If the market environment shifts significantly during the process, the valuation of the target can swing dramatically,” he said. “This alters the commercial assumptions from the original objectives and may reduce one party’s motivation to proceed.”
In most cases, the inability to reach agreement over terms was the principal reason M&A deals collapsed, Kang said. As deal structures and payment tools become increasingly diversified, negotiations are no longer confined to pricing alone.
“Payment methods, procedures, timelines, performance guarantees and compensation mechanisms have all become key points of negotiation,” he added.
Compliance issues at target companies and regulatory scrutiny of the deal proposal are also frequent hurdles for restructuring. “Such transactions typically involve multiple regulatory regimes, including industry regulators, securities watchdogs, antitrust authorities and tax authorities, and regulatory approval is by no means guaranteed,” Kang said.
In addition to conventional areas of review such as valuation logic, potential circumvention of backdoor listing rules and the handling of inside information, regulators also examine the commercial rationale of the deal and whether the acquirer was capable of effectively managing the target, he said.
Yang further emphasised the importance of deal-making experience. “Beyond commercial terms, how the parties interact also matters, including whether controlling shareholders are respected and whether the deal terms are commercially sound,” he said.
