Due diligence services in China.

Achieve financial due diligence through investigations that ensure that the target company or investment is financially sound and that all material risks have been identified.

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Financial due diligence has become a common standard for almost any kind of investment or business dealing such as mergers and acquisitions (M&A), issuing new stocks, and any other transaction that includes risk and involves the care that a reasonable entity should take before entering into an agreement. Every investment has its own level of risk, and without good research, the investor may be unable to understand that risk correctly.

A systematic process helps to ensure that buyers and others are on the same page at the time of a purchase. This method helps to prevent any entity from unnecessary harm to either party throughout a transaction. Evaluating risk accurately and acquiring the important and correct information needed to analyse another entity is the goal of financial due diligence.

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Thorough investigation

We conduct all the necessary investigations to make sure any risks associted with your target company of investment have been identified.

Clear communication

Our experienced team ensures a clear and effective communication process to ensure that buyers and others are on the same page at the time of a purchase.

Global perspective

Acclime uses its global expertise to make sure all your international compliance and governance needs are protected moving forward.

Financial due diligence services

Providing essential due diligence support.

Our due diligence services.

Due diligence confirms that all entities are safe through the following essential considerations:
- Capitalisation – How large and volatile is the company and market?
- Revenue, profit and margin trends – Are there any recent trends in the figures? Rising, falling, stable?
- Market competitors and industries – Research and compare the margins of competitors for a better understanding of the target company
- Management and ownership – Research who the company is run by. Is it still run by its founders?
- Stock history/options and possibilities – How long has the company been trading? For a short- term or long-term? Has there been a steady stock price?
- Balance sheet analysis – Analyse the debt-to-equity ratio. Is the company in too much debt?
- Risks – Understand industry-wide and company-specific risks. Are there outstanding risks?
- Expectations – What are the profit estimates for the future?

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FAQ

Common questions.

Is it necessary to conduct a legal due-diligence exercise in a M&A transaction in China?

Certainly. Some Chinese companies may have certain irregularities somewhere in the course of their business. For example, the director of a company may deliberately fail to file for registration of title to a property in order to save costs. It is imperative that a foreign investor resolves any irregularities there may be before entering into the merger and acquisition transaction. Therefore, conducting a legal due diligence exercise is often just as important as conducting a financial due diligence to determine the viability of the target company in a merger and acquisition deal.

What are the several methods for making an M&A in the China market happen??

Mergers & acquisitions deals may take the form of either;

The purchase of equity or assets of an existing company.
Share swaps
A merger of two or more business entities by way of cash or shares, or
A combination of (i), (ii) and (iii).

Given that M&A in China can take several forms, how should the business be structured?

This would depend on many factors. For example, if a foreign investor already has a reliable business associate in China, the foreign investor may wish to consider entering into a merger with the existing entity. The advantages of a merger with a local counterpart are, among others, ready local knowledge and channels to penetrate the local market and the comfort of having one less competitor in the market while the existing business continues.

In some instances, the foreign investor may worry about the hidden liabilities in the target company. Under these circumstances, the foreign investor may be reluctant to enter into a merger with the target company but wish to purchase only the assets of the target company. Therefore, the foreign investor may form a separate entity and thereafter acquire the assets of the local company through the newly formed entity. An asset deal enables the foreign investor to acquire only the viable assets without having to take over the accumulated debts and liabilities of the local entity.

Does China have an anti-trust law which a foreign investor has to consider when entering into a M&A deal?

China issued an Anti-monopoly Law which took effect from January 1, 2008. According to Anti-monopoly Law, Article 31, if a foreign investor participates in the concentration of undertakings by merging and acquiring a domestic enterprise or by any other means, which involves national security, the matter shall be subject to a review on national security as is required by the relevant state regulations, in addition to the review on the concentration of undertakings in accordance with the provisions of this law.

What is the general tax consequence of a merger in China?

According to the Notice of the Ministry of Finance and the State Administration of Taxation on Enterprise Income Tax Treatment of Enterprise Reorganisation Caishui [2009] No.59, as a general proposition, the relevant tax treatments of merger are as follows:

The merging enterprise shall determine the tax basis of assets and liabilities received from the merged enterprise(s) in accordance with the fair market value.
The merged enterprise and its shareholders shall follow the enterprise income tax treatment of liquidation.
The tax losses of the merged enterprise shall not be carried over to or be utilised by the merging enterprise.

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Due diligence services in China.

How Acclime
can help