The role of Due Diligence in M&A operations: critical issues and risks of conducting investigations in China

Abstract

In a changing and competitive business environment, merger and acquisition operations (M&As) have been one of the main vehicles for corporate growth. In the last decades, China’s economic growth produced expanded opportunities for foreign investments. More and more western companies decide to invest and to negotiate with this unfamiliar counterpart ignoring the importance of conducting a thorough due diligence. The first part of this work provides a general description of M&As with the analysis of all the different steps of the process. The second part is focused on the due diligence phase, which is an important evaluation part, decisive for the success or failure of the investment. There are different types of due diligence, such as legal, financial and environmental. But it is the cultural one which is often undervalued. The third part describes the Chinese M&A market, highlighting features and factors which make it so different from the western business environment. Cross-border due diligence is not easy to undertake especially in China. Either due to cultural differences or institutional framework conditions, or even due to financial and legal problems, some evidence must be considered when investigating this complex market.