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The role of legal service providers in cross-border M&A

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In recent years, an increasing number of Chinese companies are seeking international expansion in response to the nation’s “Go Global” campaign. Statistics show that Chinese companies have established a presence in over 120 countries with an unprecedented surge in overseas investment. Notwithstanding the growth, there still are considerable risks and challenges facing Chinese companies as social, political, and economic differences continue to complicate the highly uncertain process of acquiring overseas targets.

  • What is the role of legal service providers in cross-border M&A?

Law firms are widely considered to be a key enabler in cross-border M&A. To discuss the roles played by law firms, Dr. Ding Jia from GORG shared her insights during her interview with iDeals as part of the M&A Community China-Europe Cross-Border M&A Best Practice Sharing dialogue. The event was hosted by iDeals and co-organized by several key industry players such as KPMG, Eurasian, and GORG.

The importance of law firms, according to Dr. Ding, lies in the expertise they offer their clients as they proceed through each step of the deal. In particular, Dr. Jing discussed the role of law firms in three phases of cross-border M&A transactions.

Phase one: developing a proper M&A deal structure. In view of the time-consuming nature of deal structuring, Dr. Ding says companies should start considering the major components of a deal once they have developed the intention to acquire a target. They can consult a law firm to design a basic deal structure that can be put to use as soon as a good target is found.

Phase two: understanding the target company through due diligence. In this regard, Chinese companies and their European counterparts can adopt drastically different approaches. While Chinese acquirers are more inclined to the conventional method of hiring an attorney to investigate in the target company in its local market, their European counterparts may prefer uploading relevant documents to an online database for the buyer to review. No matter the approach, a law firm is what bridges the two sides.

Phases three: final reporting. In view of the strict regulations governing cross-border M&A, law firms can offer well-informed counsel to help buyers advance their deal. In Germany, for example, traditional industries such as machine manufacturing are easier to buy into, something a law firm will tell you. Law firms can also advise their clients on the need for financial reporting based on actual circumstances surrounding a deal in order to ensure safe transactions.

  • What’s the key to beating other buyers?

The M&A market in Europe is awash with competitors, both local and foreign. When there are so many bidders vying for the same target, what should a company do to increase their chance of success? Dr. Ding’s answer to this question has two parts.

Respond quickly. A particular weakness of Chinese companies is their slow response in the bidding process as a result of China’s lengthy approval process. However, cross-border M&A is highly time-sensitive. Hence, it helps to have within the buyer’s company a team of professionals dedicated to maintaining timely communication with the target company.

Ensure safe transactions. Though it’s important to offer an attractive price, a high bid is not the only thing that matters. What investee companies equally value is the safety of transactions. Acquirers can gain the trust of the acquired by creating transparency through the early provision of full disclosure or using financial guarantees such as a bank L/G.

To achieve the two goals mentioned above, Dr. Ding says, the key is the collaboration between the internal and external teams. External teams such as law firms are useful in promoting effective communication. Internal teams with international work experience can be put in charge of monitoring deal progress to ensure effective execution.

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