Integration is key to overseas merger and acquisition success

Overseas merger and acquisition (M&A) provides an effective approach for Chinese companies to embrace the global economy and diversify their portfolios across the world. The closing of overseas M&A deals only marks the first step towards successful overseas investment. More importantly, buyers need to have overall plans and strategic integration approaches in place to address subsequent issues related to integration, such as design of governance structure, formulation and alignment of rules and policies, and arrangements concerning equity incentives and employment contracts.

Integrating governance structures to prevent and control risks

A well-defined management system and power structure is the precondition for ensuring proper management and governance of the target. From the due diligence stage, a Chinese buyer needs to take full account of the target’s organizational structure, rules of procedure, remits and duties of management, and decision making mechanisms for significant issues. With overall strategies in mind, it should then proceed to establish a governance structure and design a solution for integrating with management organs, rules, policies, management and control approaches of the target, which will provide a foundation for effective management and control over the overseas target.

Once control over the target is acquired, the buyer should leverage the expertise of an experienced team of lawyers to identify positioning of the target in line with its development objectives and present conditions, then design a governance structure with horizontal integration and vertical controls in mind, and draft corporate governance rules and policies to define the powers and duties of shareholders, the board of directors, general manager and officers, so as to ensure effective integration at corporate structure level.

Author: Lin Zhong is a partner at EY Chen & Co. Law Firm