China Issues: M&A White paper Series No. 1M&A in China: Deal breakers and pricing challenges |
Drawing upon the firsthand experience of Deloitte LLP's mergers and acquisitions (M&A) practitioners on the ground in China, this first installment of China Issues: M&A White paper Series will look at the first two of five key questions that potential acquirers will need to ask themselves if they are to create value in China through M&A:
- At what point should we walk away from a deal?
- What is an acceptable price to both parties?
- How should the deal be structured?
- Does the deal present a compliance risk?
- How can the target be integrated into the global organization?
Recognizing Deal-Breakers Early
Answering "At what point should we walk away from a deal?" is a matter of identifying potential deal-breakers and either resolving them or cutting losses early. The most common deal-breakers to be encountered in China today are:
- Lack of integrity on the part of the target’s management
- Disagreements over management control
- Inability to establish clear title to assets or improper licensing of those assets
- Diverging expectations over price
- Conflicting stakeholder obligations
Paying the Right Price
The question "What is an acceptable price to both parties?" requires a great deal of financial and accounting sleuthing as part of an extensive due-diligence process. Deriving a price acceptable to both parties can depend on arriving at a mutual interpretation of conflicting, ambiguous or missing data. The most common issues affecting price are:
- Availability (and quality) of basic financial information
- Conflicting valuation procedures and methodologies
- Contingent and hidden liabilities
- Presence of redundancies and noncore assets
- Sustainability of sales
Although these questions encompass two of the first major challenges that an acquirer will face upon identifying a viable target in China, they are by no means the last. Download the white paper below to learn more about addressing these two challenges.
Related Content:
White paper: China Issues: M&A White Paper Series No. 2
Newsletter: China M&A Digest
Article: China Issues: Monthly Commentary on Cross-Border Investment with China
China Issues: M&A Series No. 1
(1000.24 KB)
