China Issues: M&A White Paper Series No. 2
M&A in China: Structuring and compliance considerations
Although the process for conducting cross-border mergers and acquisitions (M&A) in China is similar to doing deals elsewhere, China’s very specific commercial, regulatory and cultural environment adds an extra layer of complexity at each stage. In this installment of China Issues: M&A White Paper Series, we will look at the third and fourth of five key questions that potential buyers 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? (see first issue)
• What is an acceptable price to both parties? (see first issue)
• How should the deal be structured?
• Does the deal present a compliance risk?
• How can the target be integrated into the global organization? (Look for a future issue that answers this final key question.)
Poor structuring decisions can expose a new business to crippling legacy issues or place it in noncompliance with key regulations. They can also rob the enterprise of the flexibility it will need to compete effectively over the long-term. Wise structuring decisions, on the other hand, typically reflect an acute understanding of the acquired business' present circumstances, its place in the wider organization and where the business will be years down the road. No two structures are exactly alike, but the best typically share three key features — they contain legacy risk, they comply with all relevant regulations and they provide the new entity with lasting competitive advantages. The 'Three Cs' of M&A Structuring: • Contain
Insulate the investment from hidden or contingent liabilities associated with previous operations or from potential liabilities created during the transaction itself. • Comply
Ensure that the terms of the deal and subsequent operations are in compliance with pertinent regulations from the outset, both in China and in the home country. • Compete
Create a sustainable business model that minimizes the net global tax position and maximizes flexibility of cross-border capital deployment. Decisions made during the structuring process can reverberate throughout the life of the investment. Download the paper below to better understand how your company can navigate the uncertainties. Learn from some of the more costly errors that practitioners of Deloitte member firms in the United States and China have seen committed by foreign buyers. We hope it will help you prepare for the challenging yet rewarding prospects for cross-border M&A in China today. Related Content:
White Paper: China Issues: M&A White paper Series No. 1
Newsletter: China M&A Digest
Article: China Issues: Monthly Commentary on Cross-Border Investment with China