I was interested to note that it has been considered normal for a deal in China to include a large proportion of consideration (up to 100%) paid in advance (17 September,
page 44)
In our experience this is not market practice and a dangerous approach to adopt, particularly in a people business. We know this from experience, having just advised on the merger of Haya Architects, a 200-strong firm in Beijing, with Callison. Some key points from this deal were:
- The relationship between the key Chinese and international shareholders was strengthened over a number of months of intense 鈥済etting to know you鈥�
- The due diligence was mutual - the Chinese partners were very interested in the international firm鈥檚 ability to bring something to the table other than a financial return
- Future incentivisation and a shared vision were just as important as offering the correct price and structure.
Buyers should also be aware that there are restrictions on the deferral of contingent acquisition consideration and incorporate this into the deal structure.
But firms should not be put off China, for every bad story you hear there are many good ones, and the acquisition process is not fundamentally different from any deal in this sector. Indeed, we solved many more deal issues when we advised Davis Langdon on its sale to Aecom because of the relative complexity and sophistication of the groups involved.
The fundamental differences for a deal in China are, firstly, dealing with the legal, fiscal and regulatory requirements to ensure that you have made sure you鈥檝e done everything you need to and, secondly, bridging the cultural divide.
Jeremy Fearnley
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