Chinese New Year of the golden pig may not bring prosperity for all international M&A investors

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Irish companies looking to China need to be aware of factors that can hinder success of transactions

Irish companies looking to acquire businesses in China have been warned that only 20 per cent of such deals will deliver significant value. The findings of Deloitte research into the success of international  M&A investment in China highlights the need for the nearly 300 Irish companies trading in China to be fully aware of the potential pitfalls in such transactions if they are to successfully solidify their base there.

David Carson, M&A Transactions Services Partner at Deloitte, commented: “This year is a special year for China as the country celebrates the year of the golden pig, which only takes place once every 60 years.  The business community throughout China is heralding the New Year as a particularly auspicious year and hopes it will bring economic fortune.  A key driver of China’s success so far has been the huge interest shown by international investors.  Our research has shown, however, that only 20 per cent of transactions deliver significant value.  The first two China Hands’ ‘Golden rules’ certainly hold true: ‘anything is possible’ but ‘nothing is easy’.

“In recent years, there has been a considerable increase in the number of Irish firms that actually have a presence in China. In fact, nearly 300 firms have been attracted by the low manufacturing costs and this is expected to treble over the next three years. This in turn will lead to Irish firms becoming acquisitive in China as they increasingly look to solidify their base there. The lesson from international experience is very clear – a lot of patience and preparation are required for a successful transaction.”

The research has identified a series of important factors which can hinder the prospective Chinese business acquirer:

• Compliance: the requirements of an average Western company will come as a shock to most private companies in China;
• Corporate structure: many acquirers find that a chart of the structure and the ‘real’ structure do not tally;
• Meeting expectations: the acquirer can often have high expectations of how quickly the project can deliver value but often the deal process can take three times as long in China;
• Local regulations, laws and stakeholders: these stakeholders have considerable influence even after the deal is done and are ignored at the acquirer’s peril;
• Tax and integration: a hugely complex task which can often be ignored;
• Communication and training: language and soft-skills training are of huge importance to both sides and can require significantly more effort than in the West;
• Unexpected surprises: anything, no matter how unexpected or unintentional, is possible in China!

Carson concluded: “The success rate of M&A in China is very similar to that of the West, however, while competition and sophistication are the key challenges in the West, the hurdles in China are more complicated.  Time can be the theme that ties these issues together.  While international acquirers flock to China to make the most of the opportunities available, they can become hugely frustrated by the length of time it takes for the acquisition to deliver value.  Those companies that are taking a more professional approach to integration and are addressing key issues of culture and meeting the needs of the local regulations and stakeholders are finding that it might just be an auspicious golden year after all!"

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Notes to editor

About the research

This research has been compiled based on Deloitte's direct experience of supporting M&A and Integrations in China, and through interviews with a broad range of China based senior Western and Chinese managers on their firms' experiences with their acquisitions over the last 5 years. Collectively these acquisitions represent well in excess of USD 1 billion worth of acquisitions in China.  The full report is available at: http://www.deloitte-china.com/FAS/MIAS_Integration_in_China.pdf.

About Deloitte

Deloitte Ireland is a world-class firm of expert business advisers, serving senior business leaders who are seeking to protect and create value in a complex, dynamic environment. Our objective is to help our clients succeed by anticipating tomorrow’s agenda with focused, insightful and fresh thinking borne out of our multidisciplinary strengths. We draw upon our specialist skills in audit, tax, consulting and financial advisory both within Ireland and across the Deloitte worldwide network. 

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