Due Diligence in Cross-border Mergers & Acquisitions
2018-10-29 10:10 Monday
In recent years, new business models and technologies have spurred new growth in the Chinese economy. Chinese enterprises have actively sought out undervalued assets in the global market with the purpose of acquiring advanced technology, well-known brands and channels, a trend that has facilitated a wave of new business activity. However, corruption has inevitably effected the cross-border merger and acquisition process, and should be carefully accounted for by Chinese companies.
As global anti-corruption enforcement has become stricter，it is imperative for enterprises to carry out sufficient due diligence during a merger or acquisition. Otherwise, the acquirer will incur substantial risk, which can lead to huge fines and administrative penalties, or even the revelation after delivery that the performance of the acquired company was maintained by bribery. A thorough due diligence investivation prior to the acquisition can ensure that the acquirer detects and resolves corruption-related issues early in the process.
Due Diligence Process
1. Draft a Due Diligence Plan
A due diligence plan can reasonably arrange the time of investigation to determine the key matters of the investigation and achieve the goal of the due diligence
2. Ask for Documents and Information
Acquirers need to request documents to strictly examine the business operations, risks and control measures of the target company. In terms of data collection, the acquirer should not only review the enterprise's internal documents, but also conductdue diligence by referring to external information, interviewing internal personnel and industry experts, as well as implementing other procedures as required.
3. Assess Compliance Risks
Assessing the compliance risk of the target company can give acquirers early knowledge of the potential for corruption. This requires the acquirer to have a comprehensive understanding of the target enterprise's actual decision makers, business partners, operation methods, and compliance systems.
4. Next Steps
After a comprehensive analysis of the information collected, the acquirer should decide whether other procedures are required. The acquirer can try to negotiate a more favorable price based on the results of the due diligence, or terminate the deal if it is found to be too risky to complete.
Dealing with Crisis
The acquirer can request that the target company initiate an internal investigation and may delay the delivery date if necessary.
Proactively Disclose Potential Violations
If the acquirer still wants to proceed with the transaction in the event of potential violations by the target company, the two sides will likely have to decide whether to voluntarily disclose their violations to the authorities.
Given the potential impact of investigations and voluntary disclosures on the value of the target, the acquirer could renegotiate the terms of the agreement to compensate for the consequences of actual or potential anti-corruption.
Implement a Compliance Program
After delivery, regardless of whether the government requires it, the acquirer should immediately implement an effective anti-corruption compliance program.