M&A in China

Merger and acquisition (M&A) deals in China jumped 18 percent to more than 1,700 in the first 11 months of 2007,a report released on Wednesday said. The total M&A deals were worth more than 80 billion U.S. dollars, up 25 percent from the same period a year earlier, said a Price waterhouseCoopers (PWC) report.

Of the total, 987 deals were conducted by domestic firms, an annual increase of 45 percent. The deals were valued at 50.6 billion U.S. dollars, up 53 percent from the previous year. "Domestic capital continues to dominate M&A activities in China," said Zhao Liang, the director leading PWC's Transactions Strategy team in Beijing.

M&A saw robust growth in the financial services, property, manufacturing and mining sectors, the report stated. It added that during the January-November period, the number of M&A by private equity funds reached more than 140 and were worth 10.6 billion U.S. dollars. Overseas M&A by Chinese companies were valued at 16.4 billion U.S. dollars, Zhao said.

718 deals were conducted by foreign companies. That includes Japan, Korea, Taiwan, India and possibly Hong Kong. I don't know how they are treating Hong Kong these days. 718 doesn't seem like much considering what's going on in China. These deals are trickier for US companies due to Sarbanes Oxley. The reporting requirements are problematic.

As I understand it, the US company could be required to report all FCPA problems, tax avoidance issues and labor issues of the target company prior to aquisition by the US Company. What that means, is that US companies subject to SOX are left with the asset acquisition option because every single Chinese company will have problems in those three areas.