National security emerges as major dealbreaker in cross-border M&As

Cross-border mergers and acquisitions are increasingly being tested not only on strategic fit or financial value, but also through the broader and often opaque filter of national security.

Deals are being scrapped at the last minute as governments invoke security concerns, while in other cases acquirers are pressured to accept unfavorable conditions to win regulatory approval.

South Korean dealmakers are no exception, facing setbacks in efforts to buy or sell businesses and losing critical time as they seek to scale up, streamline operations or restructure portfolios.

Countries are increasingly intervening in cross-border deals in the name of national security. Most recently, China blocked Meta’s planned $2 billion acquisition of Manus, a Singapore-based artificial intelligence startup with Chinese roots.

One notable example involving Korea was the collapse of a $1.4 billion bid by China-based private equity firm Wise Road Capital to acquire semiconductor company Magnachip in 2021.

The deal ultimately fell through after US regulators stepped in, pointing to Magnachip’s New York Stock Exchange listing as grounds for intervention. The move was widely viewed as a national security-driven decision amid Washington’s intensifying efforts to curb Beijing’s technological rise.

Others have had to pay a geopolitical premium. Japan’s Nippon Steel completed its long-sought takeover of US Steel in 2025 only after agreeing to give Washington unusual oversight powers

Yet the scrutiny extends well beyond manufacturing.

Korean platform heavyweight Naver’s unwinding of its ties with Line Yahoo in Japan and TikTok’s efforts to spin off its US operations underscore how cybersecurity and data sovereignty concerns are increasingly reshaping global investment activity.

Recently, MBK Partners, North Asia’s largest private equity firm, reportedly abandoned its bid for Japan-based machine tool-maker Makino Milling Machine after encountering regulatory pushback.

With machine tools classified as a strategic sector because of their potential military applications, the Japanese government pushed MBK to walk away from the deal.

It is not the first time MBK Partners has faced regulatory headwinds in a cross-border M&A deal over national security concerns.

MBK’s attempt to sell Doosan Machine Tools in 2024 also drew backlash with Korea Zinc Chairman Choi Yun-birm — its adversary in the ongoing control battle for the zinc smelter — accusing the private equity firm of trying to sell a key Korean industrial asset to a Chinese buyer.

MBK later attempted to downplay the controversy, saying that while several overseas companies, including Chinese firms, had expressed interest, no detailed negotiations had taken place with any Chinese bidder.

The machine tool-maker was eventually sold to DN Automotive, a Kospi-listed auto parts maker, and it was renamed DN Solutions.

National security concerns even became a weapon in Korea Zinc’s battle against the MBK-Young Poong alliance, with the smelter moving to place its technologies under state protection rules governing overseas transfers.

Although MBK is headquartered in Korea, its foreign investor base could still attract scrutiny in politically sensitive transactions, underscoring how national security concerns are emerging as a growing hurdle for cross-border M&A deals, according to industry officials.

For private equity firms, which often take the lead in cross-border transactions, having a well-thought-out regulatory strategy has become increasingly important.

"Dealmakers are increasingly advised to allow ample time for transactions and spell out contingency measures in deal agreements in case regulatory approval is ultimately denied," said a lawyer specializing in international disputes, who requested anonymity.

The lawyer added that disputes stemming from failed regulatory approvals or prolonged review processes are also becoming more common.

"Such precautions are not new, but they have taken on greater significance as governments tighten scrutiny over foreign investment," he said.