The Most Comprehensive Guide to Corporate M&A Processes and Common Issues—Fully Explained in One Article! (Everything You Need to Know; Highly Recommended for Bookmarking)

It is worth noting that China Accounting Standards (CAS) were formulated by comprehensively referencing both the International Financial Reporting Standards (IFRS) and the U.S. Generally Accepted Accounting Principles (US GAAP) of major countries, while also taking into account China’s specific circumstances. Nevertheless, CAS continues to evolve toward convergence with IFRS. Given the UK’s historical influence and its longstanding promotion of IFRS, over 100 countries or jurisdictions have adopted IFRS—or converged with it—to varying degrees. For Chinese enterprises planning overseas M&A, the first step is to identify the accounting standards applied in the target company’s financial statements, followed by in-depth analysis to eliminate distortions arising from differences in accounting standards. Chinese enterprises engaging in cross-border M&A must guard against risks stemming from discrepancies in accounting standards, as well as related tax and financial risks. >>>> (VI) Calculation of Registered Capital in Foreign-Invested M&A Regarding registered capital: In the case of asset acquisition, determining registered capital is relatively straightforward—just like any newly established foreign-invested enterprise, the total subscribed contributions by all Chinese and foreign investors in the newly formed foreign-invested enterprise constitute its registered capital. In contrast, in equity acquisitions, the target company retains its legal person status, making the determination of registered capital comparatively more complex. Here, three scenarios must be distinguished: First, the foreign investor purchases only the equity held by the target company’s original shareholders, without subscribing to any additional capital increase. In this case, only the shareholders and corporate nature of the target company change; its registered capital remains unchanged. Thus, the registered capital of the newly established foreign-invested enterprise post-acquisition equals the registered capital of the domestic company immediately prior to its change-of-registration (from a domestic company to a foreign-invested enterprise). Second, the foreign investor not only purchases the equity held by the target company’s original shareholders but also subscribes—either alone or jointly with other investors—to an increase in the target company’s capital. Although the change in shareholders does not affect the registered capital amount, the capital increase does raise the company’s owners’ equity (i.e., net assets). Therefore, the registered capital of the newly established foreign-invested enterprise post-acquisition shall equal “the sum of the original domestic company’s registered capital plus the amount of the new capital increase.” Based on the target company’s asset valuation, the foreign investor and the target company’s other original shareholders shall determine their respective shareholding ratios in the registered capital of the foreign-invested enterprise. Third, the foreign investor does not purchase any equity from the target company’s original shareholders but subscribes solely to the target company’s capital increase. In this scenario, the target company’s registered capital increases correspondingly due to the capital increase. Hence, the registered capital of the newly established foreign-invested enterprise post-acquisition likewise equals “the sum of the original domestic company’s registered capital plus the capital increase amount.” It should be noted that, where the domestic company (i.e., the target company) is a joint-stock company and issues new shares at a premium (i.e., above par value), its registered capital—i.e., total share capital—shall equal the sum of the original company’s registered capital and the aggregate par value of the newly issued shares. In other words, under such circumstances, the “capital increase amount” referred to in the Provisions on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors means the par value of the newly issued shares—not the premium amount. In foreign-invested M&A, the calculation of registered capital directly determines how much capital the foreign party may remit for the acquisition and capital increase—making it exceptionally critical. >>>> (VII) Related-Party Transactions in Foreign-Invested M&A

17. Post-Merger Operations: Goal Setting, Execution, and Periodic Review

Setting and executing operational goals after M&A—and thereby unlocking the acquired subsidiary’s performance potential to deliver on the pre-investment business plan (BP)—is the most critical task for realizing the anticipated benefits of the acquisition. Except in cases involving the acquisition of regulatory licenses or shell companies, this integration step is indispensable. This work should be led by the highest-level management decision-making body of the subsidiary. The operational goals must be approved by the parent company. Based on the pre-investment agreement, there are two categories: one involving performance commitments (i.e., earn-outs or valuation adjustments), and the other without such commitments. Where performance commitments apply, in most cases the original shareholders retain some equity stake—or, even if they hold no equity, have not yet received full consideration. Consequently, they bear both the obligation and the incentive to achieve the committed performance targets. Possessing existing managerial expertise in the business, they will also actively leverage the parent company’s resources to meet those targets. Accordingly, goal-setting in such cases generally follows the existing development trajectory, with the original shareholders acting as the ‘owners.’ Where no performance commitment exists—or where the transaction involves purchasing existing shares and fully exiting the original shareholders—the original shareholders may transition into managerial roles or exit the company entirely. In such cases, the parent company typically appoints directors, supervisors, and senior executives to assume direct control over the subsidiary. Here, the appointed executives—or the appointed executives together with the original shareholders who remain in management—act as the ‘owners.’

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BP appoints Ben Monaghan as M&A chief from early 2027

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