During the COVID-19 pandemic, outbound Mergers and Acquisitions (M&A) activities significantly declined, not to mention the impact of U.S.-China political tensions on the overall economies. After its peak in 2016, outbound M&A deals slowed down in the following years. However, inbound M&A transactions are projected to remain robust. Moreover, China’s Belt and Road Initiative (BR) continues to attract foreign investments in trade and infrastructure projects.
Have a look at our previous article on Belt and Road Initiative for Global Tax Cooperation
What is M&A and what differentiates the outbound from the inbound deals?
Mergers and acquisitions (M&A) is a broad term used to describe the union or consolidation of companies or assets through numerous types of financial transactions. These include:
- Tender offers;
- Purchase of assets; and
- Management acquisitions.
In terms of M&A, both inbound and outbound deals are essentially cross-border deals. In differentiating the two, one only needs to consider which perspective to focus on, to know if it is an outbound or inbound deal. Therefore, companies involved in a cross-border (“crossing an international border”) M&A may either be in an inbound deal or an outbound deal. This depends on the perspective of the company and which country it is located in.
Say the domestic company is in China. If it purchases a company from another country, say in France, then from the Chinese company’s perspective, it is an outbound M&A deal. However, from the perspective of the French company, it is an inbound M&A deal.
Benefits of Mergers and Acquisitions
- Increased market shares
- Improved economies of scale
- Labor force maximization
- Enhanced financial resources
Depending on what country the outbound M&A deal is, the labor force may be cheaper. Also, transfer pricing and other considerations may also be maximized. With a value of RMB 1 trillion of M&A deals in mainland China alone, it definitely is worth looking over. The Ministry of Commerce (MOFCOM) is the main regulating and approval authority for cross border or inbound/outbound M&A deals in China.
Regulating bodies of cross-border Mergers and Acquisitions in China
MOFCOM carries out the following major responsibilities for M&A transactions:
- Foreign investment transactions;
- Granting clearance on national security review for foreign investment sensitive areas and sectors; and
- Approval of China-outbound M&A.
The National Development Reform Commission (NDRC) and the State Administration of Foreign Exchange (SAFE) also have roles in the matter of M&As in China. The NDRC manages the M&A filings before SAFE can allow for money conversion.
Meanwhile, the China Securities Regulatory Commission (CSRC) is the equivalent of the Securities and Exchange commission of other countries like the US’s SEC. It is the main regulating body for securities offerings.
Alternatives to Mergers and Acquisitions
Aside from the common mergers and acquisitions, there are other alternative means to acquire another company such as:
- Takeover offer – tendering an offer to all the shareholders of the company you want to acquire or at least part of all issued and outstanding shares from all the shareholders
- A takeover by agreement – also known as a share purchase agreement
While the former is a proposal to all shareholders, the other is targeted at controlling shareholders of the acquired company or those that have the most shares/power.
The business of mergers and acquisitions may involve a plethora of technicalities and legalities among others that you need to consider. In China, it is even more complex as many relevant regulatory bodies are involved in the process. Therefore, having the right kind of support from experienced professionals will help you with a smooth transition.
How can we help?
Mergers and Acquisitions sometimes take months, maybe even years in the making. Legal, ethical, and labor aspects must be closely settled and looked into before a deal can be made. Our professional and experienced consultants can help with your transition and acquisition. We can advise on the best route, help with tax implications, and conduct due diligence to ensure success in your deals.
Mergers and acquisitions and other forms of takeover require lots of money so you do not want to be spending it aimlessly without the right kind of people to give you direction on financial advisory. Contact us to get you started. If you are interested to know about our latest Cloud-based company solution, go to our Kwikdroid page to check the prices and packages we offer, no matter the size or type of company.
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