Are you interested in buying a business in China or doing M&A in China? Or is a Chinese company thinking about purchasing your company?
This article will talk about what you need to know from the legal side of things. We start with the topic of purchasing in China. If you are a company in the west being purchased, skip further down the article.
If you are looking into investment opportunities, see this pitch deck: ClearWay Law China
We get people that contact us for purchasing companies in China. Sometimes people reach out for help moving their company from China to countries like Cambodia or Vietnam.
A lot of factories have been moving to less developed countries. Now that China has labour laws, sketchy factories are looking for alternatives.
Factories operate on thin profit margins, and cannot afford to pay for health care, payroll tax, and employment insurance. Many companies are now getting their employees to sign long employment contracts in China.
There is a lot to learn when doing mergers and acquisitions in China. It can seem overwhelming at the best of times. You are going to need a large finance team, lawyers, and business consultants.
International Mergers and Acquisitions
You can see some of our lawyers in China below. They can assist you with all your mergers and acquisitions needs. There are a lot of business opportunities in China, and you need the right law firm to help you.
If you have purchased a company in your home country, or even a house, you will know how much paperwork there is.
If you are doing an international acquisition, it’s much more work. You will need lawyers in your home country (let’s say the United Kingdom) working with our Chinese lawyers. The two areas of law are completely different. Also, there are time zone challenges.
When doing business in China, you also have to think about political risk. There is no way to separate politics and business. If something happens between the United Kingdom, Canada, the United States and China, it’s likely going to affect your company.
The new regulations could come from your country or the other country.
When And How To Announce M&A in China?
You will need to think about how public you want to be with your growth in China. Announcing growth can be great for getting free press. The business news loves reporting on mergers and acquisitions. If you are a public company, you won’t have a choice.
But what if you are a private company? Yes, customers and investors will be attracted to companies that are doing well.
But your competitors and regulators will also become aware of you. ClearWay Law is quite public with what we are up to. Every time our CEO Alistair Vigier writes an article, some competitors send angry emails.
Some competitors might get nervous that you are acquiring or merging with companies. They might complain to a regulator (normally under a fake name.) The goal is to try and flow you down.
Also, what does the company you are merging with or purchasing think? Do they want things to be public? Some board of directors are proud to sell their company. Others see it as a failure (depending on the purchase price.)
If you did not want the M&A in China to be made public, you need to communicate this to the other company. You don’t want them to announce it by mistake. Ideally, one of our business lawyers in China would put this into the contract.
You will need very tight contracts when doing an M&A agreement.
Dealing With The Regulators With M&A in China
Naturally, word will get around town about your merger or acquisition. The regulators will want to make sure that you are compliant with all rules. This could happen in your home country, or in China.
These days there are complex securities and antitrust laws. Also, it will need to be clear that you are not exporting data from one country to another country. This could get you accused of espionage.
See what happened to Huawei for example. They were doing great business in places like Canada and the United States. Suddenly, they were accused of exporting data to the Chinese government. You need to protect yourself from regulators.
You also need to have a plan in place for when the media contacts you. It’s also important to say that you worked with business lawyers in both countries. Further, you must have a detailed plan to make sure you are compliant with all laws in which you operate.
Steps To Create An M&A Deal
The steps to do a deal in China is similar to that of western countries. You might first get to know each other, and then sign a letter of interest (LOI.) Once that is done, one side will often send over a draft agreement for review. Both parties will also start doing their due diligence.
The deals can also be different in China. There are some unique challenges. You need to make sure you are clear on how long it might take. When you are trying to find a good deal in China, you need to look for the right targets. And then you need a sales team (business development) to approach companies.
You might have to be honest with people you work for, people with your team, and other companies. It can be challenging.
You need to know finance, industry background (in China), and be able to organize information. You need to be good with data. Your team should have a focus on a few skill sets. You need to learn about market strategy and business case development in China.
And of course, you need a great legal team. There is a lot of legal work to do with M&A in China.
M&A in China With Different Industries
The amount of trouble will normally depend on how data you collect. Also, how much power you have in the country you are growing into.
For example, if you purchase a grocery chain in Beijing, it’s likely not going to cause a lot of concern.
However, if you purchase an internet company that mines data in Beijing, that’s a different story.
The energy, television, media, financial, and defence markets are also very sensitive in China. If you create products that can be used by the Chinese military, they won’t want the supplier to be foreign-owned.
Other industries are mostly banned, like gaming and gambling. You need your lawyer to do research into what you are doing. Some cities might be flexible, and others might now.
For example, Beijing is a politically sensitive city. However, Shanghai is very open to foreign companies. That does not mean that you must set up in Shanghai. It might be far more competitive and expensive than in Beijing.
The last thing you want to do with your M&A in China is get caught up in politics. Your company will never win. Some lawyers can help you navigate politics in China. Politics, business, and law all go together.
Purchasing Chinese Companies | M&A in China
The Chinese government doesn’t want companies from other countries to control their local businesses. You can purchase companies in China, but you will need a lawyer.
When you are purchasing a Chinese company, or merging with one, you will not just negotiate with the entity. You will also be negotiating with the regional government. Sometimes this is a “township” government. At other times it’s the municipal government.
If your company is massive, you will likely be negotiating with the provincial government or even the federal politicians. However, that is rare for small companies.
These are large and none reversible decisions. They must be well-thought-out. The main point of mergers and acquisitions is to find win-win situations that work well for both companies and their shareholders.
It’s great when you meet other people and everyone brings their own skillset to the deal. You want to take the thought process from different angles. You have to know legal, financial, HR, and people. It’s important to work together as a team.
Chinese Companies Purchasing Your Company
Is a Chinese company thinking of acquiring you or merging with your entity? Let’s say a company in Beijing is purchasing your company in Seattle.
Normally a Chinese company will purchase a foreign company for the following reasons:
1. To purchase a popular brand to bring back to China
2. Securing resources and key personnel
3. Growing their revenue and profits outside of the Chinese market
DiDi is a Chinese company that was modelled after Uber. When it wanted to grow beyond China, it purchased a “Uber-type company” in Brazil.
They spent a lot of money on business lawyers in Brazil doing research and due diligence. They also hired business consultants.
DiDi started as a small investor in the Brazilian company. Over time, they purchased the entire company.
We have lawyers in China and Canada. If you need lawyers in either country, fill out the form on the side of this page.