M&A

Data protection

Grindr is sold – a casualty of the Sino-US tech war

stayntouch-w

StayNTouch: no China sale

In 1953 US president Dwight Eisenhower signed an Executive Order forbidding gay people from working for the government. The action was ostensibly on security grounds to protect against blackmail by Communist agents – of the Soviet kind.

Nearly 70 years later, another American president has taken steps that will purportedly protect gay government employees from being compromised by Communist agents – this time from China.

Last year, Chinese company Beijing Kunlun Technology was given until June 2020 by the US authorities to sell the gay dating app Grindr. The goal was to make sure that the Chinese government would not gain access to potentially sensitive personal information. Earlier this month the company announced that it had found a buyer – San Vincente Acquisition Partners, a newly formed entity of US nationals, although one of them is the former Baidu vice president, James Lu.

If the Committee on Foreign Investment in the US (CFIUS) approves the $608.5 million sale, Beijing Kunlun will have turned a tidy profit on an investment it first made in 2016 ($93 million for a 62% stake) and again in 2018 when it purchased the rest of the shares (bar the 1.4% held by employees) for $152 million.

CFIUS forced Beijing Kunlun to make the sale as part of a wider remit that puts data gathering right at the heart of national security concerns. The rules governing data privacy are part of the 2018 Foreign Risk Review Modernisation Act, which came into full effect this February. CFIUS is focused on protecting access to a wide range of information, including geolocation, financial data, health data and biometric identifiers, genetic tests and general government employment identifiers.

That’s a wide net and it has just caught another Shenzhen-listed company. A day after Beijing Kunlun announced the Grindr sale, Donald Trump signed an Executive Order forcing Beijing Shiji Information Technology to sell StayNTouch, a Maryland-based hotel software business. Trump said there was “credible evidence” that Shiji “might take action that threatens to impair the national security of the United States”.

Shiji refuted the claims, saying that it posed no threat to US security in any way. “In fact, Shiji does not access the guest data of StayNTouch’s customers,” it added.

Forced sales like these have fuelled speculation about how CFIUS will treat a much bigger fish: Bytedance. As reported in WiC478, the US agency began investigating the Chinese group’s $1 billion 2017 acquisition of social media app Musical.ly last autumn. Bytedance is best known internationally for its short-video app TikTok, which is popular with teenagers. Bytedance bought Musical.ly as a base for launching TikTok, migrating millions of accounts in 2018. But CFIUS decided on a review of the initial transaction, saying that Bytedance hadn’t secured the necessary security clearances.

Some US government agencies have also banned employees from using TikTok over data security concerns. There have also been suggestions that the app has breached data privacy rules as well. In February 2019, for example, TikTok was fined $5.7 million by the Federal Trade Commission for collecting personal information from minors. Then in November, a Californian student launched a class action lawsuit, claiming that TikTok had created an account without her permission and transferred personal information to servers owned by Alibaba and Tencent in China.

This would be a breach of assurances from Bytedance that its international data is stored on servers outside China.

Keen to grow its social media presence further in the US, Bytedance is now reported to be looking at ways of separating TikTok from the rest of its Chinese businesses, although CFIUS could be difficult to convince. The company also announced this month that it had set up a “transparency centre” in Los Angeles to show regulators how it manages data and content.

“There are a lot of misunderstandings out there,” Zhang Yiming, Bytedance’s founder, recently told Reuters. “We are more localised in different markets than people think.”


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