How Chinese state-backed investors avoided US investment screening to acquire Imagination Technologies

At Datenna, our China experts continuously track and conduct detailed investigations into the acquisitions of European and US firms by Chinese entities. Through a series of articles in our resource library, we highlight striking acquisition case studies, analysed based on Datenna's in-depth, unique data on China's techno-economic landscape. This article elaborates on the acquisition of Imagination Technologies in the US.

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The Sale of Imagination Technologies

On November 3, 2017, the acquisition of Imagination Technologies by Canyon Bridge Fund I was completed. The semiconductor and software design company had put itself up for sale in June of that year, after Apple — its largest customer and one of its biggest shareholders — announced it would stop using its technology in their products.

Canyon Bridge paid £1.82 per share in cash, valuing Imagination Technologies at approximately £550 million (€619 million) — a premium of 47.4% to the share price on June 21, 2017.

A State-Owned Equity Fund

The shares in Imagination Technologies were acquired by Canyon Bridge Fund I, based in the Cayman Islands with China's Bank of Communications serving as custodian. The fund is managed by Canyon Bridge, but 99% of its capital is provided by Yitai Capital (Hong Kong) — a full subsidiary of China Venture Capital Fund Corporation (CVC), a state-owned investment vehicle. CVC's largest shareholder (35%) is China Reform (China Guoxin Investment), owned by the Chinese State Council. Other investors in CVC include China Construction Bank (CCB) and Shenzhen Investment Holdings — both ultimately traceable to the State Council or local government. Through these various ownership layers, Imagination Technologies is in essence under the control of the Chinese government.

What Does Imagination Technologies Do?

Imagination Technologies has over 25 years of experience designing and licensing processor solutions for graphics. Its technology is used in over 30% of smartphones worldwide. Headquartered in Hertfordshire, UK, the company creates and licenses semiconductor System-on-Chip Intellectual Property (SoC IP). Before the acquisition, its primary activities included the design of PowerVR mobile graphics processors and networking routers, as well as radio baseband processing, networking, cloud computing, and silicon and system design services.

After losing Apple as its biggest customer, Imagination Technologies pivoted toward the GPU business — transitioning from a varied processor IP provider to an almost exclusive focus on GPUs and visual processors. In January 2020, then owned by Canyon Bridge, Imagination Technologies re-entered into a multiyear licence agreement with Apple, granting the US firm access to a wider range of Imagination's intellectual property in exchange for licence fees.

Approval by UK Authorities

The sale was approved by the government of then-Prime Minister Theresa May, on the basis that Canyon Bridge was licensed and regulated under US law. Canyon Bridge subsequently sought to acquire Lattice, a large US semiconductor company, and announced plans to move its headquarters to the Cayman Islands.

In 2017, CFIUS (Committee on Foreign Investment in the United States) blocked Canyon Bridge from acquiring Lattice, citing "unresolved national security concerns." The US Treasury Secretary stated that the national security risk related to the transfer of intellectual property, the Chinese government's role in supporting the deal, and the importance of semiconductor supply chain integrity. By relocating its headquarters from the US to the Cayman Islands, Canyon Bridge would have fallen outside US jurisdiction entirely.

Separately, Imagination also sold its microprocessor business unit to Tallwood MIPS Inc., a company indirectly owned by US-based Tallwood Venture Capital. It is widely speculated that this divestment was a strategic move to prevent CFIUS from blocking the Canyon Bridge deal — by separating the US unit from the UK business, CFIUS would have had no authority to intervene.