Challenges and Coping Strategies in the Overseas Mergers and Acquisitions of Chinese Automotive Enterprises

Challenges and Coping Strategies in the Overseas Mergers and Acquisitions of Chinese Automotive Enterprises
Robert B. Weiss, Co-Chairman of Honeywell Law International's merger and reorganization of the automotive industry, head of the Commercial Law, Bankruptcy and Reorganization Division.

Gasgoo.com: Mr. Weiss, what do you think is the most important legal concern for companies in the automotive industry in China in the due diligence of mergers and acquisitions?

Mr. Weiss: I think that when conducting mergers and reorganizations in the United States, it is crucial for Chinese companies to conduct due diligence on intellectual property rights. Because in many cases of mergers and acquisitions, the most important issue for most Chinese companies is to gain access to technology. This is very important. They must ensure that the merged company has the right to allow Chinese companies to use the technology. This is not only to ensure that the company has the ability to allow Chinese companies to run the business, but also to ensure that they have the right to use the technology in China. Therefore, I think that the most important of all the problems is the due diligence on intellectual property rights. If the acquisition technology is the purpose of the merger and reorganization of the company, the first priority that Chinese companies should pay attention to is to perform due diligence on intellectual property rights.

Gasgoo.com: When conducting due diligence, what do you think the Chinese government should pay attention to?

Mr. Weiss: On this issue, we can answer from the US government and the Chinese government separately. If the seller is a U.S. company and the other party to the deal is a Chinese company, then the seller wants to know two things: Does the Chinese company seriously consider making an acquisition? Do Chinese companies have enough determination and funds to make acquisitions? If the buyer needs the approval of the Chinese government, can it obtain timely approval? From the perspective of Chinese companies, they actually do not need to worry too much about whether they can get approval from the U.S. government. However, if the buyer company is partly owned by a foreign government and the company’s business is related to the national security of the United States, then the acquisition must be approved by the US Overseas Investment Commission. As far as I know, none of the mergers and acquisitions to date have resulted in the failure of the U.S. government to obtain the approval of the U.S. government.

Gasgoo.com: How do you see a due diligence on intellectual property rights in a successful car mergers and acquisitions case?

Mr. Weiss: I think intellectual property is a very special area. For example, in our law firm, we have a full-time intellectual property lawyer. In major transactions, it may take several lawyers to work together to complete due diligence. Our full-time IP lawyers include patents and trademark lawyers. They understand both the automotive industry and the intellectual property laws, so they can ensure that due diligence is completed. In this way, buyers can more easily acquire intellectual property and have the right to use the intellectual property on their own.

Gasgoo.com: What is the most important asset assessment? How to conduct an overall asset assessment?

Mr. Weiss: I think intellectual property is an important part of asset assessment. First of all, you want to make sure that this intellectual property can not only be used in the United States, but it can also be used in China. Once you are sure that you can use the technology, you can value it. You need to understand the value of bringing this technology to China for business development. Therefore, understanding what is intellectual property and ensuring that you are able to use it as you wish is a key issue, which at the same time ensures the smooth conduct of the transaction and the appropriate value for you. Another aspect is that you need to understand the business of the acquired company. What impact will its potential revenue and profitability have on your company in the next five years? What contracts have been signed between the acquired company and the vehicle manufacturer? How profitable are these contracts? Do you have rights in these contracts? How does the automaker evaluate the acquired company? Will they continue to cooperate with the acquired company and help it develop? It is necessary to ensure that the existing contract can accurately depict the business status of the acquired company and at the same time ensure that the right person can be found in the vehicle manufacturer to directly and accurately answer the above questions. These issues are very important but not easy to accomplish.

Gasgoo.com: How to avoid illegal use of intellectual property?

Mr. Weiss: If the company you acquired does not own intellectual property rights but only holds third-party intellectual property licenses, then you need to protect your rights and avoid violations of intellectual property laws. You should carefully check the license, because the license will have very strict restrictions on the scope of use of the technology, it may only be allowed to use in certain products of the acquired company. If you use this intellectual property license to produce the same product in China, you may be violating the license. Once you violate these restrictions, some legal consequences will arise, including a court order prohibiting you from producing the product, and compensating the license holder for damages. This is why it is very important to have a good understanding of the license and to negotiate with third parties as much as possible to expand the scope of the license. It is important to understand that if I pay to buy this company, I do not just want to buy this company, but I also want to use this company's technology in China, but if the license does not allow me to use the technology, then Buying this company is a mistake. As for the counterfeiting technology, the seller will worry that some foreign companies conduct due diligence just to obtain the seller's intellectual property information rather than really want to acquire the company. . Therefore, U.S. companies will require Chinese companies to sign confidentiality agreements before sharing information and restrict Chinese companies from using the seller’s technical information obtained during the due diligence process. Another thing sellers will do to protect their intellectual property rights is that they will limit the sharing of technical details until they are certain that you are a serious buyer. For China and U.S. OEMs and suppliers, the protection of intellectual property rights is a very important issue. Understand who owns the technology, confirm the ownership chain and check the license with third parties; at the same time, confirm that patents and trademarks are valid and understand the company's global intellectual property strategy. All of these should be carefully examined in due diligence.

Gasgoo.com: Mr. Weiss, what is the difference between M&As between domestic companies and overseas M&As?

Mr. Weiss: In mergers and acquisitions, representing Chinese companies is more difficult than representing American companies. The reason for this is first of all that Chinese companies are relatively lack of experience in mergers and acquisitions in the United States; secondly, there are differences in language between the two countries, and it is difficult to communicate to customers about what happened and what needs to be prepared; The distance between countries and cultural differences are also very important reasons. You know, without good communication, there will be a lot of misunderstandings. If American lawyers do not understand the actual needs of Chinese companies, then M & A transactions may be rejected. Similarly, if Chinese customers do not understand the steps American lawyers take to complete the acquisition, they may also reject the transaction. So it is very necessary to establish a process to deal with these issues, and I think it is critical to establish an effective process. In the decision-making process, quick consideration is particularly important, especially when you compete with another buyer. So it is very important to overcome these obstacles and establish a relatively quick decision-making process. Only in this way can the negotiation process proceed smoothly.

Gasgoo.com: As far as I know, several mergers and acquisitions cases between Chinese companies and overseas companies have failed recently. Do you not know how you comment on these cases?

Mr. Weiss: First of all, I'm not sure which of the cases you are referring to, and I'm not quite sure which companies are involved. However, I think that some of the factors I mentioned above can explain some of the reasons for these failures. If you can deal with some of these issues in advance or during the acquisition, then you will have a relatively smooth transaction, but if you do not do so, then the results may not be the same as what you expected. The lawyer’s role is to explain to the client all the details of the entire process and tell the client how long the progress will take, what decisions they need to make, and so on. If you can do this for your customers in advance, then the entire acquisition process will be much easier. If you can't complete these things in advance, then halfway through the transaction you will find that you and your customers have different understandings of the entire process, and then you have to stop to explain to your customers. This is a waste of time and ultimately leads to an extension of the entire transaction process. This is partly due to the lack of Chinese M&A experience and the lack of understanding of the U.S. legal system.

Gasgoo.com: You just mentioned the time limit. Can you tell us how long a successful M&A case will last?

Mr. Weiss: In fact, there are different time frames. For example, the seller will often hire an investment banker, and then the investment banker will start a sales process, and an integral part of the process is to establish the time limit. Then, the seller will send information about the company to a large number of potential buyers. We assume that Chinese buyers are one of them. If you indicate that you are interested, you will be asked to sign a confidentiality agreement. Once you sign the agreement, you will receive some information. Then within a certain period of time, you will be required to sign a "Letter of Intent" which usually contains the outline of the entire transaction, each step, the price, the assets acquired and the liabilities to be assumed, the deadline for the preparation of the transaction, and so on. The seller will select several companies or a company that takes this transaction seriously to conduct in-depth discussions. Negotiations will continue, so the timetable may be reset. The larger the transaction, the longer it will take. A big deal may take a year from start to finish. For example, if a transaction requires the approval of the Chinese government, the buyer may need to obtain approval within a specific period of time, perhaps 60 days, 90 days or longer. If the buyer cannot obtain approval within the specified time, the seller has the right to withdraw from the transaction and the buyer may have to pay some compensation. So I think that the delay in the Chinese M&A case was partly due to the fact that getting approval from the Chinese government is not so easy.

Gasgoo.com: In the case of mergers and acquisitions between all Chinese and foreign companies, how to properly deal with labor relations and employee benefits?

Mr. Weiss: Dealing with labor relations, the company must have a very strong human resources department, a very clear policy, and management and trade unions to maintain a good relationship. The buyer must have a thorough discussion with the U.S. company regarding employee benefits and employer's obligations. It can be a very complicated matter. As I said before, we have lawyers specializing in intellectual property rights. We also have lawyers who specialize in labor relations and employee benefits. Therefore, when we reach this step of the transaction, we will involve lawyers who are dedicated to employment and who are proficient in relevant laws and regulations. This is a very technical field. For example, retirement benefits may be a complex issue to understand. You need to do regular testing to ensure that you have enough money to pay for long-term benefit plans. If your funds are not enough, the government will give you a deadline to improve the situation. If it does not improve, it will have serious consequences. Therefore, this is another important area in which due diligence must be conducted to avoid major problems in the future. If a Chinese company encounters labor-related problems during the transaction, my suggestions are: First, thoroughly understand the labor contract. Second, in addition to the labor contract, we must try to establish a better working relationship with the labor force. In the automotive industry, labor practices, the strength of trade unions and other labor issues have undergone many changes. I think the bottom line is that there are many successful companies that have their own union agreements and union employees. They seek a reasonable way of working to jointly promote the prosperity of the company. I think many Chinese companies are very worried about how the United States will deal with the needs of American workers in the future. I suggest that they spend more time and energy learning from and learning about the successful models of unionized companies. Of course, we also need to consider the issues of culture and value. I think Japanese companies have the same problems when they first arrived in the United States in the 1970s and 1980s, but they found a

Overcoming labor problems and achieved great success. They introduce their own culture and values ​​to their employees and enable them to accept and understand it. This is an example that is worth learning from Chinese companies.

( Source: Gasgoo.com)

Hydraulic Pipe Bender

Hydraulic Bottle Jacks,Tube Bender ,Hydraulic Tube Bender ,Square Tubing Bender

Lifting Jack Co., Ltd. , http://www.nbliftingjack.com

Posted on