Mergers and acquisitions as one of the areas of business and its capitalization currently do not lose their relevance in the business world. If an individual or a company is willing to initiate an overseas M&A transaction, they usually face preliminary questions regarding the selection of the appropriate transaction structure. The choice of the acquisition structure is important to the corporate strategy underlying the M&A opportunities in China.
Tailor-made decisions
Over the past 10 years, the number of M&A transactions in the world has increased by about 6 times. More than 80% of all international capital investments are spent not on the creation of new production facilities, but on the acquisition of assets of existing enterprises.
China-focused M&A usually requires customized solutions.
Foreign companies investing in China's financial sector face constant challenges to assess optimal deal structures. Likewise, Chinese buyers who plan to start an M&A deal in the US or EU often face similar challenges.
One can start an M&A deal in the People's Republic of China with the main structures:
- assets acquisition in China;
- share purchase of a Chinese company.
Previously, when registering joint ventures in China, foreign companies were limited to own less than 50% of the shares. This approach has led to serious issues of forced IP transfer. As a result, foreign companies are experiencing difficulties in their attempts to operate profitably and achieve a positive return on investment through JVs in China. The situation may change in the near future.
An authorization is required to establish a JV with foreign partners in China. A foreign partner must contribute at least 25% of the share capital when establishing a joint venture with a Chinese partner. Therefore, foreigners are recommended to apply an individual approach if they are interested in entering the Chinese capital market.
Good news for foreign companies operating in China: now they can acquire a majority stake in a joint venture in China in industries previously considered "limited." This shift in policy allows foreign companies to effectively defend their own economic interests in the country.
Final word
Despite a weakening global M&A market, China's overseas M&A is only increasing. Looking to the future, in terms of the number of transactions, private enterprises will continue to lead the M&A market overseas, and in terms of transaction volumes, state-owned enterprises continue to dominate.However, despite the rapid growth, many entities have already issued warnings to Chinese enterprises, believing that Chinese acquisitions and mergers of foreign companies pose many challenges to foreign policy.
Seeking to enter the Chinese market? Acquiring a target business here remains the main method among foreign companies.
New regulatory changes affecting China's JV requirements indicate liberalization of government policies. Such changes increase the interest of foreign companies in JVs with a Chinese partner.
International companies looking to invest in Chinese enterprises need expert advice. Our company’s seasoned specialists provide assistance in the negotiation process with the regulator to obtain permits for M&A transactions in China. Please contact us by filling out the feedback form below.
