3com Sues Bain Capital for 66million, CFIUS is to Blame


3com is suing the private equity firm Bain Capital Partners for a $66 million termination fee when the 3com-Huawei deal fell apart. Apparently the US government thought that Tipping Point, a 3com acquisition in early 2005, which supplies highly secure network solutions for the military; and Huawei, founded by a former officer in the Chinese army, were not a good fit. Bain decided that the Committee on Foreign Investment in the United States (CFIUS) would likely not approve the deal, and they jumped ship.

Although this looks like a battle between 3com and Bain Capital, under the surface there is struggle between the CFIUS and US corporations looking to sell capital, or be acquired overseas. Other examples are the Dubai Ports case, where the CFIUS thought U.S. national interests would be harmed and The China National Offshore Oil Corporation’s attempted acquisition of UNOCAL back in 2005.

According to a recent study by David Marchick, the CFIUS approval process has gotten much more rigorous and it has become much harder to predict outcomes, discouraging foreign investment in the U.S. With large pools of capital located overseas, this could potentially turn in to a huge problem for growing enterprise software companies if the domestic economy weakens much further.