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 discuss what you need to know from the legal side. 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 need to speak to an M&A lawyer in China, contact our legal consultant on Wechat: alistairvigier

We receive inquiries from people interested in purchasing companies in China and from people seeking help moving their companies from China to countries like Cambodia or Vietnam.

Many 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 now get 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 will need a large finance team, lawyers, and business consultants.

Business Consolidations in China

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 or even a house in your home country, 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 (the United Kingdom) working with our Chinese lawyers. The two areas of law are entirely different. Also, there are time zone challenges.

When doing business in China, you must also consider political risks. There is no way to separate politics from business. If something happens between the United Kingdom, Canada, the United States, and China, it will likely affect your company. The new regulations could come from your country or another country.

Large M&A’s In China

One of the biggest gaming deals in history was Chinese tech giant Tencent’s 2016 acquisition of a majority stake in Supercell, the Finnish mobile game developer. The $8.6 billion deal allowed Tencent to tap into the lucrative mobile gaming market, which has become increasingly popular recently.

In 2016, Chinese ride-hailing giant Didi Chuxing acquired Uber’s Chinese business for a staggering $35 billion. This merger helped Didi establish itself as the dominant player in the Chinese ride-hailing market, controlling over 90% of the market share.

The Chinese e-commerce giant Alibaba acquired the online food delivery platform Ele.me for $9.5 billion in 2018. Ele.me was seen as a significant player in online food delivery, with a 34% market share. The acquisition allowed Alibaba to compete with rivals like Tencent-backed Meituan-Dianping.

Largest-ever foreign acquisition by a Chinese company

In 2014, Lenovo, the Chinese tech giant, acquired Motorola Mobility from Google for $2.9 billion. This allowed Lenovo to access Motorola’s patents and technology, expanding its smartphone business. However, Lenovo has struggled to turn around Motorola’s struggling smartphone business in the face of stiff competition from Apple and Samsung.

The largest-ever foreign acquisition by a Chinese company at the time was ChemChina’s $43 billion acquisition of Swiss agribusiness firm Syngenta in 2016. The deal allowed ChemChina to gain a foothold in the global agribusiness market and tap into Syngenta’s expertise in seeds, pesticides, and crop protection. However, this acquisition has raised concerns about China’s growing global food supply chain influence.

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 doing well.

But your competitors and regulators will also become aware of you. ClearWay Law is quite public about 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 boards of directors are proud to sell their companies, while others see it as a failure (depending on the purchase price).

If you do not want the M&A in China to be made public, you must 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.

Corporate Mergers and Takeovers in China

Word will spread about your merger or acquisition. The regulators will want to ensure 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 must be clear that you are not exporting data from one country to another. 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. It would be best if you protected yourself from regulators.

You also need to have a plan 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 ensure you comply with all laws in which you operate.

Steps To Create An M&A Deal

The steps to a deal in China are similar to those in 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 a draft agreement for review. Both parties will also start doing their due diligence.

Deals can also be different in China, and 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. 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, and industry background (in China), and be able to organize information. You need to be good with data. Your team should focus on a few skill sets. It would be best if you learned about market strategy and business case development in China.

Of course, you need a great legal team. There is a lot of legal work involved in M&A in China.

China’s M&A Landscape

The amount of trouble will generally depend on how much 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 will likely not cause much concern. However, purchasing an internet company that mines data in Beijing is a different story.

China’s energy, television, media, financial, and defence markets are also very sensitive. If you create products the Chinese military can use, 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 not. 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

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 purchasing a Chinese company or merging with one, you will not just negotiate with the entity. You will also be dealing 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 negotiate with the provincial government or even 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 finding win-win situations that work well for companies and their shareholders.

It’s great when you meet other people, and everyone brings their skill set to the deal. You want to take the thought process from different angles. You have to know legal, financial, HR, and people. It’s essential 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.

A Chinese company will often purchase a foreign company for the following reasons:

1.  To buy a famous 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 expand beyond China, it purchased an “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 a 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.