Get to know your Chinese investor

News of Chinese investors acquiring Western businesses is widely reported but as with most things the bad news travels faster than the good. It is more newsworthy to report of deals falling apart, or Chinese buyers failing to get approval or financing or appearing to simply not understand or be sufficiently prepared for the situation they are getting themselves into.

Having spent most of my career in Hong Kong and Beijing I smile ruefully when I read such headlines – recognising some of the issues I have experienced in working with Chinese clients but also the unreported fact that multi-national companies undertaking mergers and acquisitions (M&A) in China often commit equivalent errors of judgement.

These things do and will continue to happen. However, it is important to differentiate Chinese investor groups. The increase in activity is driven by both relatively sophisticated buyers doing repeat deals and new entrants doing their first deal.

Most of the former – like the big oil majors, mining giants and the bigger Chinese PE funds – run sophisticated deal processes and make effective use of advisors and are increasingly able to cope with the rigours of a Western auction process.

Most of the latter group have too much to learn to be able to succeed in a competitive bidding situation and will take time – and very often one or two false starts – to get a deal across the line.

One of the most impressive features of Chinese culture is the ability to learn quickly. We have already seen this applied in global M&A. I see no reason why, in a relatively short time, a wider group of Chinese investors will be just as able and credible in global deals as their western counterparts are now.

In the meantime, if you are seeking to attract Chinese investment, or have been approached by a Chinese investor, it is essential to understand the type of buyer you are dealing with and to assess their short-term ability to execute the deal – not just their longer-term potential as a shareholder. By working with advisors that have a significant presence in and experience of both jurisdictions you can minimise the risk of a deal turning sour.

Perhaps you have first-hand experience of doing a deal involving Chinese investors….how did it go? What was the main thing you learnt? Share your thoughts below:

Gareth Marshall | Corporate Finance Specialist
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