Acquiring rights to U.S. and European technologies has become a priority for Chinese companies—as well as national policy. “Large state-owned companies possess phenomenal production capacity, but generally lag in R&D and technological advancement,” says Morrison & Foerster Beijing-based partner Sherry Xiaowei Yin. “Acquiring technology assets allows them to diversify their products and ascend the global supply chain.” Also in Beijing, Morrison & Foerster partner Thomas Man notes that “small to medium-sized U.S. companies in cleantech, IT, and biotech are attractive targets.”
This fast-expanding deal cosmos has unique complexities, starting with U.S. government security concerns over sensitive technologies. Differing corporate governance, financial reporting, and accounting standards can be thorny, too–along with a transactional learning curve.
“As a group, Chinese acquirers are diverse players with individual constraints,” says Hong Kong-based Morrison & Foerster partner Thomas Chou. “Not all are experienced in outbound M&A deals, or in navigating the U.S. regulatory framework.”
Still, Chinese executives, returning with lessons learned in the U.S., are growing more sophisticated. “Securing IP assets is a priority,” says Morrison & Foerster partner Janet Xiao. “Yet parties often overlook due diligence regarding freedom to operate, chain of title, and other IP concerns. These can become irreparable later on.”