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back to index backASIAtalk May,  2007

China Issues: M&A Series No. 1

M&A in China: Deal breakers and pricing challenges.
Drawing upon the firsthand experience of Deloitte's mergers and acquisitions (M&A) practitioners on the ground in China, this first installment of China Issues: M&A 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?

As Clarence Kwan, national managing partner of the Chinese Services Group, notes: Foreign investors find that the process for conducting cross-border M&A in China is similar to doing deals elsewhere, but China’s very specific commercial, regulatory and cultural environment adds an extra layer of complexity at each stage.” 

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.

To download 15-page report, click here.

Source: Deloitte - GAI

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