In a series of high-profile developments, market volatility has led to the abrupt termination of several major mergers and acquisitions (M&A) in China’s semiconductor industry. The turbulence, driven by fluctuating valuations and unpredictable market conditions, has underscored the challenges companies face in managing multi-layered risks during complex transactions.
Key Cancellations in the Semiconductor Sector
Among the most notable cancellations was the proposed merger between Hygon Information Technology and Sugon. The two companies, both backed by the Chinese Academy of Sciences and listed on the market, had announced a strategic restructuring on June 9, 2025. The deal involved a share swap valued at RMB 115.97 billion (USD 16.6 billion). However, on December 9, 2025, the transaction was called off.
Hygon and Sugon cited the complexity of the deal, the involvement of numerous stakeholders, a lengthy assessment process, and significant market changes since the plan was first devised. These factors, they explained, made the conditions for implementation "immature."
Another short-lived deal occurred when 3Peak announced its acquisition of Aura Semiconductor, only to terminate the agreement just two weeks later. Similarly, VeriSilicon withdrew its plans to acquire Nuclei System Technology, further highlighting the sector’s ongoing instability.
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Market Fluctuations and Risk Management
The failure of these M&A deals has drawn attention to the impact of capital market volatility. At an investor briefing, Sha Chaoqun, director and general manager of Hygon, elaborated on the challenges faced by the terminated merger with Sugon. He pointed to significant fluctuations in the share prices of both companies since mid-August 2025, which were influenced by 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. Kang emphasized that while risks are often identified during due diligence and transaction design, the real challenge lies in anticipating how these risks may evolve over time and assessing their eventual impact.
Challenges of Capital Market Dynamics
Yang Feifei, a partner at Chance Bridge Law Firm, echoed Kang’s concerns, highlighting the difficulties posed by rapid valuation changes. "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."
Kang further noted that disagreements over terms are often a primary reason for the collapse of M&A deals. Modern transactions, he explained, now extend beyond pricing negotiations to include payment methods, procedures, timelines, performance guarantees, and compensation mechanisms. This diversification has introduced new layers of complexity to the negotiation process.
Regulatory Hurdles and Compliance
In addition to market factors, regulatory scrutiny remains a significant hurdle in the completion of M&A deals. "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", said Kang. He added that regulators examine key aspects such as valuation logic, potential circumvention of backdoor listing rules, handling of inside information, and the commercial rationale of the deal.
Deal-making experience also plays a critical role in navigating these challenges. Yang emphasized the importance of fostering collaborative relationships between parties, stating that "beyond commercial terms, how the parties interact also matters, including whether controlling shareholders are respected and whether the deal terms are commercially sound."
Lessons for Future Transactions
Despite the setbacks, industry experts see these failed deals as valuable opportunities for learning. Kang pointed out that these experiences highlight the importance of identifying and managing risks proactively in complex transactions. The evolving landscape of the semiconductor industry, coupled with market volatility, underscores the need for companies to adopt more robust risk management strategies in future M&A endeavors.
While the volatility of capital markets and regulatory barriers continue to challenge the feasibility of large-scale mergers, the lessons from these terminated deals provide valuable insights for navigating the intricate dynamics of the semiconductor industry. As companies reassess their strategies, the focus will remain on balancing risk, valuation, and negotiation to ensure sustainable growth in a highly competitive market.
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