What are the 3 most common mistakes made when acquiring a Chinese company?


chinesI am looking to buy a Chinese company. There is so much advice out there; so many checklists and warnings highlight the particular sensitivity of due diligence in China. What are the key areas that I should really concentrate on to avoid making the mistakes made by many multinationals and foreign companies?

The Financial Advisor Perspective -

1. Looking in the wrong places and with unrealistic expectations -

The saying that no deal is better than a bad deal is very valid. However in China, sometimes, too many transactions are lumped into the “bad deal” category. The failure rate for deal completion is very high, at around 50% to 60% for multinationals, despite a high demand for acquisitions. Based on an InterChina survey of approximately 200 multinationals, over 80% have considered acquisition as part of their growth strategy. However, there are a lot of wasted efforts in conducting potential acquisitions where in the end nothing gets done. Hence, wasted resources and, more importantly, missed opportunities.

The wrong reasons for a deal not to be completed include failure to identify the right target, lack of skills in resolving problems and negotiating better terms, inability to assess risks in the right context and, most significantly, wrong expectations. As a result, deals that could have been salvaged get killed instead.

Originally published on www.chinalawandpractice.com - May/June 2014.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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