The geoeconomic era: investing in a world defined by strategy and security

Strategic competition between the United States and China continues to shape the international landscape, prompting governments across Europe, Asia and Australia to adopt policies that prioritise resilience, security and technological advancement.

The blending of economic and security policy - often referred to as 'geoeconomics' - is transforming market dynamics and how investors evaluate risk.

In this context, cross-border investment and M&A are increasingly influenced by political and strategic factors. Considerations such as national interest, industrial policy and national alliance alignment now stand alongside valuation and commercial logic as defining features of the current M&A environment.

Strategic decoupling and the escalation of investment screening

Strategic competition between major economies continues to politicise cross-border capital flows. The global shift from 'free trade' to 'secure trade' has introduced new sensitivities around foreign investment, leading to increased scrutiny - particularly in sectors deemed critical to national security such as technology and infrastructure.

Sector sensitivity

In Australia, FIRB continues to expand its oversight. The Foreign Investment Reform (Protecting Australia's National Security) Act 2020 (Cth) introduced a 'zero-dollar' threshold for 'national security businesses', including companies involved in critical infrastructure (such as energy, water and transport), telecommunications, defence and sensitive data handling. This means even minor acquisitions can trigger a review.

The 2025 FIRB guidance notes emphasise that FIRB is interpreting 'national interest' broadly, particularly in light of geopolitical risk, alliance alignment and strategic sector exposure.

Transactions in sectors linked to critical minerals, telecommunications, defence, AI and dual-use technology face heightened scrutiny under both FIRB and the Security of Critical Infrastructure Act 2018 (Cth). These regulatory developments are clear geopolitical signalling of the trends to come.

Preferred investors

'Strategic alignment' has effectively become a valuation metric. Buyers from allied jurisdictions - such as the United States, the United Kingdom and Japan - are generally viewed more favourably than those from strategic competitors.

Sovereign wealth funds and state-owned enterprises face longer review timelines, enhanced scrutiny of beneficial ownership and additional requirements relating to governance and reporting. The Treasurer has demonstrated a clear willingness to intervene where issues of compliance or strategic risk arises. For example, in early 2023, the government blocked a China-linked Yuxiao Fund's attempt to increase its stake in Northern Minerals. This was followed by directives for several China-linked investors to divest, and, in June 2025, the commencement of Federal Court proceedings over alleged breaches of investment conditions.

Deal certainty

Extended FIRB timelines have become a consistent feature of complex or sensitive transactions. Reviews now frequently exceed 90 days, and in some cases, have impacted deal viability. For example, the proposed A$102 million sale of CZR Resources' Robe Mesa iron ore project to Miracle Iron, remained under review for nearly a year, leading to the expiry of exclusivity arrangements.

In response, bidders are increasingly incorporating regulatory risk management into deal structuring. Conditional approvals, deferred completion dates and tailored undertakings have become standard practice. Effective M&A execution now demands early engagement with FIRB, clear communication of ownership and governance structures and prolonged contingency planning for extended review periods.

Defence, technology and AUKUS

The alignment around geopolitical alliances also presents opportunities. The AUKUS agreement has reshaped Australia's role within allied defence and technology supply chains, generating new avenues for investment alongside increased regulatory complexity.

In 2025, AUKUS is shifting from policy design to industrial implementation, with three key developments directly influencing M&A activity. Australia is advancing its submarine industrial base, investing in shipyard capacity, workforce training and technology transfer to support the future construction of conventionally armed, nuclear-powered submarines. The Australian Government is actively promoting domestic industry participation, creating procurement pathways for Australian companies and encouraging strategic alliances between Australian and foreign companies to strengthen industrial capability.

Opportunities

AUKUS partners will intensify work on defence-technology integration, driving investment and consolidation among dual-use technology companies, particularly in advanced domains such as hypersonics, cybersecurity, artificial intelligence and quantum technologies. Global defence contractors are increasing their presence in Australia, while local start-ups and advanced manufacturers are seeking capital and partnerships to participate in allied capability development.

Constraints

These sectors fall within the scope ofFIRB's national security provisions and are also subject to allied export control regimes, such as theUS International Traffic in Arms Regulationsand theUK Export Control Order. As a result, an acquisition may satisfy Australian requirements yet still require clearances from partner jurisdictions, adding complexity and time to deal execution. This results in heightened competition for strategic assets and closer regulatory scrutiny of ownership and control – but also creates opportunities for aligned investors to participate in allied capability development.

Ownership transparency

Regulators are placing greater emphasis onbeneficial ownership and governance disclosure, particularly for private equity and venture capital investors. Fund structures, investor composition and control rights are being examined in far greater detail than in previous years.

For acquirers, this environment requires early planning fornational security due diligence, transparent ownership reporting and governance arrangements that meet both domestic and allied approval conditions. Execution timelines are lengthening accordingly, reinforcing the need for proactive regulatory engagement at the outset of any defence or dual-use technology transaction.

Securing supply chains

These opportunities extend all the way back to the start of the supply chain. Global supply chains are continuing to adjust as businesses respond to trade frictions, geopolitical competition and post-pandemic disruption. The 'China-plus-one' approach of diversifying sourcing and production away from exclusive reliance on China has become a structural feature of corporate and government strategy, rather than a short-term response to risk.

Investors are increasingly assessing transactions not only on financial metrics, but also by the degree to which they secure strategic inputs, reduce exposure to single-jurisdiction suppliers or meet domestic content thresholds in allied markets. Australia is well positioned to benefit from this realignment. Its reserves of critical minerals, battery metals and clean-energy resources make it an attractive destination for diversification.

Critical minerals and strategic resources

Australia's role as a supplier of lithium, nickel, rare earths and other critical minerals has made it a focal point for supply-chain strategies. M&A activity in this sector is driven less by short-term pricing and more by the strategic imperative of securing long-term supply. China retains dominance in rare earths global production and processing and has demonstrated its ability to restrict exports during periods of trade tension. In response, the United States and its partners are investing in alternative supply and processing capacity, with Australia viewed as a cornerstone of this diversification effort.

Allied capital flows

Japanese trading houses, Korean conglomerates and US and European investors are actively pursuing stakes in Australian projects and processing facilities. The US Department of Defense has co-funded Lynas Rare Earths' facility for heavy rare-earth separation and introduced a floor-price mechanism for neodymium and praseodymium output from MP Materials- the only United States' fully integrated rare-earth producer. Korea Zinc and POSCO have both pursued Australian lithium and nickel stakes to secure midstream processing capacity. These developments illustrate the geopolitical premium now attached to secure processing capability.

Government incentives

Policy frameworks such as the US Inflation Reduction Act (2022) (IRA) and the EU Critical Raw Materials Act provide subsidies and preferential treatment for materials sourced from 'trusted partners.' These incentives are driving outbound capital from allied markets into Australia as investors seek to anchor critical-mineral supply within politically aligned jurisdictions.

Valuation pressures

Competition for Australian assets remains strong. Buyers are increasingly willing to pay strategic premiums for secure offtake positions and integrated roles in the battery-materials supply chain.

As the AFR noted in October of this year, share prices for Australian rare earths producers have surged on expectations of renewed consolidation and government-backed demand, signalling that 2025-26 could bring a new wave of deal activity across the critical minerals sector.

Industrial policy and state-driven capital

The fourth and arguably most transformative trend is the resurgence of industrial policy. Across the world, governments are using fiscal tools and state-backed funds to shape capital into sectors critical to national resilience and the energy transition.

Australia has joined this trend. The Future Made in Australia Act 2024 (Cth) and the subsequent Production Tax Credit and Other Measures Act 2025 (Cth) formalise a framework for public–private investment in clean energy, critical minerals and advanced manufacturing. These Acts complement the Critical Minerals Strategy 2025, directing concessional finance through agencies such as the Clean Energy Finance Corporation (CEFC), the Northern Australia Infrastructure Facility (NAIF) and the Future Fund. Globally, this parallels the US Inflation Reduction Act (2022), the EU Green Deal Industrial Plan (2023) and Japan's and Korea's strategic manufacturing subsidies.

This new era of state activism is blurring the boundaries between public policy and private capital. M&A transactions increasingly involve co-investments or joint-ventures structures with state-backed entities. Due diligence must now assess 'policy alignment risk' - assessing whether a target operates within priority sectors eligible for government incentives. Access to government funding or exclusion from subsidy regimes can materially shift valuations and competitive positioning.

Governments have now clearly signalled their intention to intervene in the markets of strategic industries. Understanding not just market fundamentals, but also the direction of state capital is becoming a core component of M&A.

Key takeaways for investors:

1. Position for capital inflows from Australia's strategic partners. Critical minerals, renewables and defence-linked sectors are magnets for inbound investment from trusted partners. Companies considering divestments or partnerships in this sector should anticipate parallel political and regulatory considerations. Securing a high bid may matter less than finding a buyer acceptable to Canberra and its allies.
   
2. Alliance alignment premium. Bidders from allied jurisdictions may command a 'geopolitical premium', as beneficiaries of smoother regulatory pathways and stronger government support.
3. Supply chain premium. Assets that simplify or secure supply chains may command higher valuations, as buyers prioritise reliability and diversification over cost.
   
4. Regulatory strategy is integral to deal design. Effective M&A execution requires early engagement with FIRB, careful consideration of the geopolitical context, clear communication of ownership and governance structures to relevant stakeholders and the development of contingency plans to address potentially extended review periods.
   
5. Policy fluency creates competitive advantage. Understanding Australia's industrial priorities - clean energy, critical minerals and advanced manufacturing - will determine who gains regulatory trust and who is left outside subsidy regimes.
   
6. Build flexibility into structures. Conditions, break fees and alternative structures should be designed to absorb shifting political signals.

As governments attempt to use regulatory and industrial policy to shape markets and advance strategic goals, dealmakers who can adeptly navigate both the regulatory and geopolitical terrain will define the next generation of successful transactions in Australia's evolving investment landscape.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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