Local character plagues M&A deals

Source:Caixin.com Published: 2013-7-10 22:53:01

Chinese overseas merger and acquisition (M&A) activity reflects distinct characteristics of the domestic economy. These characteristics include institutional features of State-owned enterprises (SOEs), an opaque government approval system and the unusual lending activity of big banks. Chinese enterprises must consider the impact of these forces and face the resulting challenges both at home and abroad.

The success of many SOEs in the Chinese market has been dependent on administrative protection and preferential policies. These advantages disappear when target acquisitions are abroad and international competitors have better technology, management and talent. Finally, these institutional and cultural differences make integration with the target companies more difficult after mergers.

It may appear that State intervention on commercial terms is helping Chinese enterprises secure greater benefits, but the practice is bound to make Chinese enterprises lose credibility in overseas deals. Even worse, it may fan perceptions that the bidding firm and the government are colluding.

The author is Li Junjie, a research fellow in international acquisition and investment at Renmin University of China.

Caixin.com



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