Government cleared £28m Chinese takeover of Flusso after ‘a full national security assessment’ last year

The UK government has confirmed that it decided last year to take no action on the acquisition by Shanghai Sierchi Enterprise Management Partnership of Cambridge-based fabless semiconductor company Flusso.

Flusso was spun out of Cambridge University’s Department of Engineering in 2016, with support from Cambridge Enterprise, the University’s commercialisation arm. The flow sensor company was co-founded by Prof Florin Udrea, Prof Julian Gardner, Dr John Coull and Dr Andrea De Luca: all are sensor experts with semiconductor industry experience.

The company raised £4.65million in a Series A round in June 2020 led by Parkwalk Advisors. Flusso launched its first product, the FLS110, the world’s smallest flow sensor, that year.

In August 2022 Flusso was acquired for £28million by a then-unnamed company and a global private equity (PE) fund. The news was initially greeted with enthusiasm.

Dr Andrea De Luca, CEO and co-founder, said at the time of the deal: “It will help to accelerate the commercialisation of our flow sensing product lines; to fast-track the development and launch of our gas sensor products; and allow us to increase the investments and engineering resources allocated to developing new sensor innovations.”

Dr De Luca added: “We will also get improved access to markets and customers, particularly in Asia.”

Cambridge Enterprise noted on its website: “The transaction will enable the acquirers to expand their current product portfolio into flow and environmental sensing, and to establish a European footprint in Cambridge, UK to add to its existing facilities in the US and China.”

In January 2023 it became apparent that the £28m deal meant that Flusso is now fully under Chinese ownership. Concerns about security implications were triggered when it emerged that Shanghai Sierchi Enterprise Management Partnership was the unnamed company behind the acquisition. Chinese corporate registry information revealed that Sierchi was incorporated in 2021 and is 80 per cent owned by Zhenxin Equity Investment Partnership.

On January 6, 2023, tech newspaper UKTN revealed for the first time in the UK media that Flusso had been acquired by Shanghai Sierchi Enterprise Management Partnership, “a special purpose vehicle which took 100 per cent ownership of Flusso on August 11, 2022”.

That same month, Flusso had appointed two Chinese nationals based in Shanghai – Dan Zhou and Feiran Shi – as company directors.

On January 13, 2023, The Times newspaper reported that Alice Kearns, chairwoman of the foreign affairs select committee, had written to Grant Shapps, the Secretary of State for Business, Energy and Industrial Strategy, urging him to review the sale on national security grounds. Her letter spoke of a British company “critical to our economic security and future prosperity falling into the hands of an entity that was set up to service the interests of a systemic competitor”.

Her letter (shown above) of January 11, 2023 noted: “It has since emerged that Shanghai Sierchi Enterprise Management Partnership is controlled by Shanghai Baoding Investment and another wholly owned Chinese subsidiary. Shanghai Baoding is an investment firm 73 per cent controlled by the Chinese government. In waving through this transaction, we are granting the Chinese Communist Party direct access to one of our leading tech start-ups in an area of vital strategic importance”.

The government’s response then revealed that the buyout had actually already been investigated. A statement published on the government website on January 24 stated: “The government has powers under the National Security and Investment Act (2021) to scrutinise and, if necessary, intervene in qualifying acquisitions on national security grounds.

“The acquisition of 100 per cent of Flusso Limited by Shanghai Sierchi Enterprise Management Partnership was called in for a full national security assessment by the then business secretary Kwasi Kwarteng on March 29, 2022.

“Following careful consideration, he decided to take no further action and a final notification was issued to both parties on June 21, 2022.”

A spokesperson for Flusso said: “Flusso and its acquirers have complied with all applicable UK and Chinese laws and has no further comments to make.”