Managing Regulatory Risks in U.S.-China Mergers and Acquisitions

August 18, 2022 | BY

Hugo Yeung

A U.S. company acquiring a Chinese company will face a multitude of regulatory restrictions and requirements. How can the U.S. acquirer manage the risk of the deal being blocked or unwound for non-compliance?

 

Credit: ALM

Summary

  • U.S. acquirers of PRC target companies must consider investment restrictions, sanctions, and export controls from both jurisdictions
  • Pre-acquisition due diligence should include risks-based, open-source investigation on the target's ownership chain and business counterparties
  • Acquirers may consider carving out problematic business lines or using alternative acquisition structures such as licensing and technical services arrangements
  • An acquirer can mitigate its exposure to sanctions risks by securing contractual exit options and requiring the seller to provide comprehensive representations and warranties along with a full indemnity
  • Parties should set out in contract how they intend to deal with enforcement action, including whether the terms of the agreement can be adjusted, whether a break fee is payable, and how costs are to be apportioned
  • PRC blocking statutes may render certain contract terms unenforceable

 

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