Jilian Consultants Co., Ltd.
Jilian Consultants Co., Ltd.

Preparations for Overseas M&A Negotiations

In any negotiation, it is necessary to have a well-thought-out plan, make various arrangements and rehearse possible accidents, in order to achieve the expected negotiation results, especially for cross-border transactions, it is necessary to make careful preparations and cooperation at all stages of overseas M&A negotiations. 

1. Set up an international professional service team for overseas M&A negotiations and maintain good public relations

In this regard, the gap between Chinese enterprises and overseas multinational companies is relatively large. When a multinational company conducts cross-border transactions, it generally hires a professional international intermediary team (such as investment banks, accountants, lawyers, appraisers, etc.), or the company is equipped with relevant departments and professionals, and the company's internal personnel work closely with the intermediary agencies To finalize the details of the transaction and the negotiation plan, the division of labor is very clear, and the authorization is often sufficient. Of course, this is based on the professional division of labor and a high degree of specialization.

Another advantage of cultivating and forming an international team is that high-level international management talents can help investors to clear government relations and public relations, effectively communicate with all parties involved in the transaction, and ensure the smooth implementation of mergers and acquisitions and integration.

However, the above-mentioned aspects are exactly what many Chinese enterprises ignore. A successful overseas M&A negotiation must be based on the unity of "time, location, and harmony of people", not just determined by the purchasing power of Chinese companies.

2. Overseas M&A negotiations focus on preliminary due diligence and contract drafting

The purpose of paying attention to preliminary due diligence and contract drafting is to understand the real legal, financial and tax situation of the proposed investment industry and target company, and to coordinate professional service personnel to issue analysis/suggestions and legal reports with professional and commercial value. In terms of contract drafting, it is especially necessary to fully understand the core clauses such as the prerequisites for equity delivery, corporate governance and control, exit mechanism, rights and obligations of both parties, and dispute resolution mechanism, and draft relevant legal texts to lay a contractual foundation for the implementation of the contract.

An excellent due diligence team should understand the proposed investment industry and the host country, and be able to give analysis and suggestions with professional and commercial value, and the results of due diligence are the prerequisite for in-depth negotiations. In terms of contracts, on the one hand, Chinese investors should prudently sign contracts, and only consider signing contracts after fully understanding the core terms and confirming that they can be implemented;

3. Fully understand the approval procedures of competent authorities in China and destination countries before overseas M&A negotiations

Before the negotiation, it is necessary to fully understand the transaction approval procedures of the competent authorities of China and the country where the investment is intended, so as to avoid delays or even shelving of the transaction due to insufficient understanding of the approval procedures of the competent authorities abroad.

First of all, "going out" must be subject to heavy supervision by various competent authorities in the country (such as the National Development and Reform Commission, the Ministry of Commerce or provincial commercial authorities, state-owned assets departments, and the Administration of Foreign Exchange, etc.). There are so many laws, regulations, and rules. For companies planning to conduct overseas mergers and acquisitions, lack of awareness or omissions in any link may lead to delays in the entire merger and acquisition plan.

Moreover, after going abroad, Chinese companies need to meet various requirements or inspections of the government of the investment destination country, usually including national security inspections, anti-monopoly inspections, etc.

4. Design a rational and pragmatic transaction structure in advance for overseas M&A negotiations

In order to prevent potential legal risks in the process of enterprises going global, we need to fully communicate with enterprises in the countries where they intend to invest, ensure that the expected goals and core interests of the transaction are reflected and protected in the transaction structure, and set up a rational and pragmatic transaction structure. If it is necessary to pre-set a reasonable equity increase mechanism, if the equity needs to be further integrated and increased after the acquisition is delivered, room for increase can be reserved.

The reason for emphasizing that companies should be rational and pragmatic in selecting acquisition targets and designing transaction structures is mainly to avoid investment losses due to eagerness for success. In the selection of acquisition targets, Chinese-invested overseas enterprises should choose familiar fields or industries. Even if some overseas mergers and acquisitions are aimed at increasing the business types of Chinese-invested enterprises, the acquisition should also be considered on the premise of fully understanding the target industry and specific operating conditions of the acquisition.

Otherwise, investors will easily fall into the embarrassing situation of "easy delivery and difficult integration". In the construction of the transaction structure, it is necessary to determine whether it is necessary to grasp the company's control or holding position according to the actual situation of the project, and sometimes acquire a minority stake in the target company, starting from a small shareholder (you can set a reasonable shareholding mechanism), learn experience and technology and gradually It is also a good choice to grasp the investment environment of the host country and various aspects of the target company, and then decide whether to increase the shareholding ratio in due course.