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Characteristics of asset acquisitions in China

November 2010 - Finance. Legal Developments by Lefèvre Pelletier & associés .

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In order to enter the Chinese market or rapidly develop there, it is becoming more and more common for companies to acquire a Chinese competitor or take over a subcontractor in China.

There are many reasons for such acquisitions but the most recurring ones are (i) the difficulty and the risk for companies to set up on their own, (ii) the difference in the level of quality of the products sold in China (similar products are manufactured by the Chinese for the Chinese which are of lesser quality but are significantly cheaper) making the Chinese market different from those of Europe and North America, (iii) the difficulty in understanding a market very different from ours (different consumer expectations, the geographical immensity of the market, human resources management, etc). 

At the same time, the Chinese industry, undermined by the crisis that we are experiencing, offers a wealth of opportunities for foreigners and we observe this every day in our office in Guangzhou, the 3rd largest city in China, located in the province of Guangdong, the famous "workshop of the world" which has been particularly affected by the collapse in the number of orders from abroad since 2009. Many factories have been forced to file for bankruptcy or remain in a difficult financial position, thus creating many investment opportunities for foreigners. 

But most of the time not everything is worth taking and rather than buying a Chinese company, it is very often a better deal for a foreign company to acquire its assets, and especially the production facilities of one of its subcontractors, a supplier or a partner with a similar or complementary activity. 

Therefore acquiring just the assets of a Chinese company rather than its interests, without solving all of the problems encountered in the context of acquisition operations, can make it possible to circumvent many legal obstacles, an outline of which we will give you here. 

I - The acquisition of assets, an appropriate solution in case of doubt as to the target company 

II - Identification of difficulties within the framework of the acquisition of assets 

 


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