In a typical China investment and M&A transaction we act as the only China lawyer and take responsibility for the management of all China legal aspects of the transaction including most or all of the following:
- Legal Due Diligence “LDD”);
- Advise on China specific tax issues, very often in conjunction with the client’s international financial advisers;
- Design an effective legal structure for the transaction to take account of the results of LDD, and to minimize acquisition and tax risk;
- Advise on remedial action needed because of deficiencies revealed by LDD;
- Prepare transaction documents in English and Chinese for the conduct of the transaction;
- Assist in negotiations with the other party and relevant government authorities;
- Liaise and work with our client’s home country in-house or external counsel;
- Liaise and work with our client’s financial advisers and bankers;
- Provide all employment related advice and documentation;
- Provide training for Chinese staff regarding anti-trust and compliance; and
- Provide ongoing corporate and compliance support and advice.
Managing issues that arise in a China investment project
China investment and M&A projects vary in size and type and each one raises particular issues in structure and commercial details that must be negotiated with the other party. As the project proceeds other urgent issues arise that must be identified, managed and resolved.
We efficiently manage issues. Our many years of experience on the ground working with clients from different countries enables us to anticipate many of the issues that might arise in a transaction, and avoid them before they arise, or quickly resolve them.
Of course difficult issues arise from time to time, and not every project can proceed to a successful conclusion, but we do everything that we can to manage the project to a successful conclusion. Our in depth experience with China investment and M&A is a valuable resource when negotiations get difficult and helps us to overcome any obstacles that arise.
As you would expect, we maintain close communication with client representatives and their internal and external advisers to ensure that they are kept informed of progress with their China investment project. It is part of our service guarantee.
Representative examples of China investment and M&A transactions
Water treatment – China investment USD 10 million
Our client, a US based start-up with advanced technology for cleaning really dirty water, entered into a transaction with a Chinese privately owned company. The Chinese party took a minority equity interest in the US company which then, in cooperation with its Chinese investor entered into arrangements to promote the use of the technology in China.
We conducted legal due diligence on the Chinese party, advised on the China issues related to the US equity transfer and assisted at all negotiations. We prepared all of the documents to set up the China arrangements, attended all negotiations and advised generally.
Coal to gas – initial China investment USD 90 million
Our client, a US based start-up with advanced technology for coal to gas, entered into a transaction with a large Chinese privately owned company. The Chinese party took a minority equity interest in the US company which then, in cooperation with its Chinese investor established an entity in China to further develop the technology. This was quite a sophisticated series of transactions with a number of approval levels.
We were the China lawyers, advising on all aspects of the transaction relevant to China, including ensuring that all US specific documents would be effective in the China context. We conducted legal due diligence on the Chinese party, advised on the transaction as a whole, assisted in negotiations and drafted all China documentation in English and Chinese. We also liaised with government authorities and finalised the transaction.
Beverages – initial China investment USD 50 million
Our client, an international brewer, decided to acquire a majority interest in a Chinese domestic brewery.
We advised on the structure of the acquisition to minimise legal exposures and tax implications. After conducting the legal due diligence requested by our client we worked with their team to prepare all transaction documents in English and Chinese, advised on all legal issues related to the transaction and assisted in negotiations with the Chinese target company and the relevant Chinese government authorities.
We also assisted our client to resolve foreign exchange issues related to the closing of the transaction.
Hotel consumables – China investment USD 1 million
Our privately held Singapore based client, with our assistance, had previously purchased a minority interest in a manufacturing Joint Venture where a Chinese State Owned Enterprise held the majority interest.
Our client had international experience in the business and concluded that the JV was not reaching its commercial potential. Their Chinese partner would not agree to proposed changes so they decided to buy them out and convert the JV into a Wholly Foreign Owned Enterprise.
We assisted in devising the strategy to purchase and conducted legal due diligence on the target company. We also advised on the structure of the acquisition to minimise legal exposure and tax implications. When the structure was agreed we prepared all transaction documents in English and Chinese, advised on all legal issues related to the transaction and assisted in negotiations with the Chinese target company.
Civil explosives – initial China investment USD 5 million
Our Australian ASX listed client intended to acquire a majority interest in a small privately held Chinese company that manufactured special equipment for use with civil explosives.
This was quite a sensitive transaction as anything to do with explosives and their use is closely regulated in China. Many licences are required to operate in this area and that limited some of the options that might be used in structuring the transaction.
We first devised the structure to be used for the acquisition taking account of ongoing legal obligations and potential tax obligations and negotiated many aspects of this with the Chinese party. We also conducted the legal due diligence essential in a transaction of this complexity.
Once the structure was agreed, and the legal due diligence was completed, we worked with client’s team in preparing all transaction documents in English and Chinese, taking account of the detailed legal issues related to the transaction and the results of the legal due diligence.
We attended negotiations with the target company and also assisted in negotiations with the relevant Chinese government authorities.
Non-woven fabrics – initial China investment USD 3 million
Our client, a listed UK company intended to increase the breadth of its product range by acquiring a majority interest in a privately owned Chinese company that manufactured non-wovens.
Our legal due diligence revealed that some aspects of the structure of the Chinese company were unusual and needed to be remedied for the transaction to proceed.
We advised on the remedial action needed to be carried out by the Chinese party and the structure of the acquisition to minimize legal exposure and tax implications.
We also worked with our client’s team to prepare transaction documents in English and Chinese, advised on all legal issues related to the transaction and assisted in negotiations with the Chinese target company and the relevant Chinese government authorities.
Medical appliances and consumables – initial China investment USD 1 million
Our client, a US listed company, intended to acquire a 50% equity interest in a privately held Chinese company that manufactured medical appliances and consumables. This area is highly regulated everywhere because of the potential risk to patients. In the context of the transaction certain licences were held by the target that would need to be re-applied for by the new entity, and interim arrangements had to be implemented to enable production to continue uninterrupted.
We conducted legal due diligence and taking account of the results devised the strategy and structure for the transaction to minimize legal exposure and tax obligations.
We also worked with the client’s team in preparing all transaction documents, advising all legal issues related to the transaction and assisted in negotiations with the Chinese target company and the relevant Chinese government authorities.
Natural resources 1 – initial China investment USD 50 million
Our Australian ASX listed client decided to have access to a resource in China by taking a minority interest in a US company with existing rights in China. Once invested in the US company it intended to take a further interest in the China resource and capitalize it through to production.
The project was challenging legally because of the different jurisdictions involved and we worked closely with our client’s US and Australian counsel. Challenges were also presented by the need to be tax effective while working within China’s complex regulatory regime for natural resources.
We advised on the structure of the acquisition and implemented it in a series of transaction documents. The structure for payments was also quite detailed with part of the project funded by way of convertible notes.
Natural resources 2 – China investment USD 2 million
Our client, a Singapore entity with extensive interests in CBM and shale gas resources decided to sell a subsidiary holding China resource rights to the Hong Kong subsidiary of a Chinese listed company.
We prepared all transaction documents, advised all China legal issues related to the transaction and assisted in negotiations with the Chinese company.
Natural resources 3 – China investment USD 300 million
Our client, a UK listed company, had rights to a world class iron ore resource in Africa. We advised our client on the sale of a substantial interest in its project to Chinese State Owned enterprises.
Education – China investment USD 450,000
Our client, an Australian based early childhood education institute, intended to acquire a number of kindergartens located in China. This area of the Chinese economy is closely regulated and has challenges for a foreign investor because it is legally in the non-profit realm.
We devised the business structure for the China investment so business objectives could be achieved in a compliant manner. Once the structure was agreed we prepared the transaction documents in English and Chinese, and participated in negotiations with the Chinese parties.
Mining equipment 1 – China investment USD 640,000
Our client, an Australian ASX listed company, intended to acquire a Chinese privately owned manufacturer of mining equipment.
We conducted the legal due diligence on the target company. We advised on the structure of the acquisition taking account of the results of the LDD and recommended remedies for the deficiencies identified. As usual, legal exposure and tax implications were considered and incorporated into the transaction structure and implementing documents. In consultation with our client’s team we advised on transaction issues and drafted all documents in English and Chinese. We also assisted in negotiations with the Chinese target company and the relevant Chinese government authorities.
Mining equipment – 2 China investment USD 600,000
Our client, a privately held company supplying parts and services for the maintenance of heavy mining equipment, decided to take an equity interest in a privately owned Chinese company that manufactured maintenance parts and new equipment.
We advised on the structure of the acquisition to minimize legal exposures and tax implications. We also worked with the client’s team in preparing all transaction documents, advising all legal issues related to the transaction and assisted in negotiations with the Chinese target company and the relevant Chinese government authorities.
Textile Machinery – China investment USD 10 million
Our client, a Chinese manufacturer of textile machinery, intended to transfer part of its interest in the company to a Swiss company.
For commercial reasons the transaction was very time sensitive and had to be completed expeditiously. We assisted our client to negotiate with the Swiss party, drafted the transaction documents in English and Chinese, and assisted with negotiations.