Mergers and Acquisitions in China 2009

Deal Cultivation – Key to Success in Making Acquisitions in China Steven H. Ganster, Managing Director Technomic Asia A Subsidiary of Tompkins International [email_address] www.technomicasia.com www.tompkinsinc.com Presented at the… 2009 & 6 th Annual Mergers & Acquisitions in China Summit

Topics ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

The M&A Landscape China is in a “late adolescent” phase in terms of market maturity... Infant Toddler Young Teen Late Adolescent

The M&A Landscape ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],A number of planning and operating challenges color the backdrop of making acquisitions in China…

The M&A Landscape ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Given this environment, several key issues are shaping M&A in China today…

The problems in the “early days” of the JV are leading to altered strategies today… ,[object Object],[object Object],[object Object],[object Object],Evolution of M&A as a Strategy 80s – 90s 2000 2010 50/50 JV WOFE Acquisition

There are many complex issues surrounding acquisitions or joint ventures in Asia. ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Unique Complexities in China M&A ,[object Object]

Market/Competitor Assessment Develop Strategic Intent Partner Qualification Deal Cultivation LOI Due Diligence Deal Close Integration / Start up WOFE, Other Alliance Unique Complexities in China M&A ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Unique Complexities in China M&A

Strategy vs. Structure China’s tough market environment necessitates doing “strategy before structure” In the past… Structure (JV) China Strategy Force-fit the strategy to the structure Find the structure to fit the strategy Structure (any) China Strategy Today…

Foreign Investor Chinese Company LTD FIE (JV, WFOE) Non-China offshore company (NCOC) FIE (JV, WFOE) China border FIE (JV, WFOE) Buy shares or the whole NCOC to own the FIE in China* Convert the Chinese Company to an FIE in case of equity deals or concurrently set up an FIE to hold acquired assets The Foreign Investor owns or intends to set up an FIE first Direct acquisition Buy and run acquired assets The NCOC owns the FIE Strategy vs. Structure *It is also popular when establishing a JV, to set up the partnership outside of China which entity then wholly own the China WFOE FIE (JV, WFOE) Convert JV to WFOE in case of buying equity form Chinese owner(s) or concurrently set up an FIE to hold acquired assets

China sellers often have a different deal paradigm that is critical to appreciate … Everything flows from financials… Everything flows from relationships… vs. Cultivating the Deal – Buyer and Seller Motivations ,[object Object],[object Object],[object Object],[object Object],[object Object],“ The West” ,[object Object],[object Object],[object Object],[object Object],[object Object],China ,[object Object],[object Object],[object Object],[object Object],[object Object]

The Acquisition Process… Transaction Structure & Execution Candidate Identification & Qualification Acquisition Strategy Legal, Financial & Commercial Due Diligence LOI Signed In China, acquisitions require more upfront target cultivation and pre-due diligence than is typically needed in the West. Cultivating the Deal – Doing the Work! Deal Cultivation & Pre Due Diligence Market Assessment & Business case These areas often short changed

[object Object],The Acquisition Process… Approach to target companies Negotiation of Framework Agreement Discovery Stage Formal DD Stage and Valuation Definitive Agreement Signing of LOI Transaction costs can be quite high in China, compared to the deal sizes available, so effective “discovery” is important before spending substantive dollars in due diligence. Cultivating the Deal –Discovery Stage Transaction costs

Some Key Principles for Deal Success ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Introduction to Technomic Asia A Division of Tompkins Associates Summer 2009 For more information, contact: Steve Ganster Managing Director [email_address] Technomic Asia China Office Room 502, Jin Tai Building 58 Mao Ming Road (South), Shanghai 200020, China Tel: +86-21-6473-2588 Fax: +86-21-6390-6659 www.technomicasia.com www.tompkinsinc.com

Background ,[object Object],[object Object],[object Object],[object Object]

[object Object],[object Object],[object Object],[object Object],[object Object],Technomic Asia Core Services

[object Object],[object Object],[object Object],China Capabilities Through its subsidiary in Shanghai, Technomic has extensive operational experience in China (as well as the Asian region in total). ,[object Object],[object Object]

China Capabilities (cont’d) ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

[object Object],[object Object],Technomic Asia provides a unique value proposition which differs from other consulting and firms in Asia. Our Value Proposition ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

We provide capabilities in candidate identification, qualification and due diligence, as well as underlying alliance/acquisition strategy and deal support. Candidate Qualification and Screening Market Based Due Diligence Negotiation and Close Core Services Include... Acquisition Strategy Development ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Acquisition Services ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Mergers and Acquisitions in China 2009

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Mergers and Acquisitions in China 2009