Currently, cross-border mergers and acquisitions (M&A) are one of the important strategic means for companies to go global. According to IT Juzi statistics, in the third quarter of 2024, the transaction value of Chinese companies' cross-border M&A increased by 460 million yuan compared to the previous quarter, a sequential increase of 5.2%.

Journalists have noticed that since the beginning of this year, regulatory authorities and local governments have introduced measures to encourage corporate mergers and acquisitions, and banks have also launched relevant service plans for cross-border M&A.

Zhang Yi, a senior partner at King & Wood Mallesons, pointed out the challenges in corporate cross-border M&A. In recent years, the global political and economic situation has become more complex, with several major investment and M&A destinations tightening regulation on foreign investment and M&A transactions, making regulatory approval more uncertain in deals; companies may face legal risks when conducting cross-border M&A due to unfamiliarity with the legal systems of the destination; companies need to enhance their grasp of the cross-border M&A transaction process; and after the acquisition, it is necessary to manage and integrate the target company.

Advertisement

Profitability and cost control should be considered.

When discussing the reasons for the popularity of corporate cross-border M&A, Zhang Yi pointed out that the demand for companies to rapidly develop high-tech industries through mergers and acquisitions is prominent; the need to improve the global supply chain in some industries is increasing; in recent years, to promote Chinese companies to "go global," overseas investment regulatory standards have become clearer and relatively relaxed, and the convenience of foreign exchange fund flows has significantly improved.

In terms of policy, in September of this year, the aim is to adhere to the market-oriented direction and better leverage the main channel role of the capital market in corporate mergers and acquisitions.

In terms of financial services, during the 7th China International Import Expo, Shanghai Pudong Development Bank introduced a "4+6+10" cross-border M&A service system, relying on the "four pillars" of cross-border accounts, cross-border institutions, cross-border alliances, and cross-border consulting, focusing on the "six major scenarios" of Chinese industry going global, international capital introduction, overseas listing and red-chip structure, value discovery and privatization, international companies' overseas purchases, and value-added optimization and integration, providing enterprises with ten services including "going global shopping, cross-border investment, red-chip loans, return wins, overseas debt, policy library, treasury connection, credit enhancement, mezzanine financing, and exchange rate risk avoidance."

A professor at the School of Accounting of Shanghai University of Finance and Economics pointed out at the second CFO Forum of Shanghai University of Finance and Economics, hosted by the Alumni Association of Shanghai University of Finance and Economics and undertaken by the Accounting School Branch of the Alumni Association, that under the promotion of China's "going global" strategy, the internationalization strategy of Chinese enterprises, and the "Belt and Road" initiative, more and more Chinese enterprises are going abroad to carry out cross-border mergers and acquisitions, achieving rapid development. However, enterprises face great risks and challenges in the process of "going global" due to political, economic, and social differences, as well as information asymmetry.

For example, in terms of fund management, Tang Minjie, the executive director and financial officer of Shanghai Haohai Biotechnology Co., Ltd., pointed out that financial management needs to comprehensively consider the design of tax structures, domestic and foreign fund management, and exchange rate risk prevention and control. Establishing a global fund pool to achieve fund allocation and optimization among subsidiaries is one of the effective means to improve fund utilization. Cross-border operations require careful identification of the company's exposure to exchange rate risks in various countries, using financial instruments such as forward contracts to hedge exchange rate risks. In addition, differences in accounting standards and cultures across multiple countries have put higher demands on the financial team, mastering and applying accounting standards from different countries, and preparing compliant financial statements are necessary; it is also necessary to establish an efficient cross-border financial team, overcome barriers such as cultural and value differences between countries, promote team collaboration, and improve management efficiency.

In the view of Li Ming, the partner in charge of PwC China's corporate M&A services, investment needs to take into account two major elements: profitability and cost control. Although the current decline in capital costs has driven investment growth, global policy uncertainty and non-linear changes in various factors have increased volatility and risks. In response, Li Ming believes that Chinese companies should base themselves on their advantages, rely on industry competitiveness, integrate their strengths into the industrial chain, and take "Made in China" and "industrial upgrading" to a broader world market. He emphasizes that implementing a going-global strategy from the perspective of the supply chain is crucial and requires a comprehensive consideration of various factors to set clear strategic goals.

Chinese companies' overseas layout continues to accelerate.

Looking at the future of corporate cross-border M&A, Zhang Yi pointed out that first, countries and regions participating in the "Belt and Road" initiative will continue to be popular destinations. Countries and regions participating in the "Belt and Road" initiative will become more obvious as popular destinations for cross-border M&A. China will continue to increase its opening up, encourage, and support more enterprises to participate in the development of countries and regions involved in the "Belt and Road" initiative. This will not only promote the globalization process of Chinese enterprises but also bring more benefits to countries and regions involved in the "Belt and Road" initiative, achieving mutual benefit and win-win results.

Second, when enterprises carry out cross-border M&A, they must fully assess the geopolitical risks of the target market and industry, and formulate corresponding risk management strategies to ensure the smooth progress of M&A and the security of investments. If the transaction involves key technologies, critical infrastructure, or sensitive personal information, it is necessary to fully assess whether there is uncertainty in the relevant approval procedures.

Third, legal policies will further support corporate overseas M&A. China is firmly advancing trade liberalization and investment facilitation, adhering to a high level of opening up, actively promoting the connection with international high-standard trade and economic rules, and integrating into the global economic system with a more open attitude. Based on insisting on legal supervision and reasonable guidance for corporate overseas investment, Chinese legal policies will further support corporate overseas M&A.

Fourth, Chinese enterprises will further improve their overseas investment capabilities. It can be expected that Chinese enterprises will be more at ease in the overseas investment and M&A market: the ability to discover overseas transaction opportunities will be significantly improved, and investment will tend to be rational; the ability to discover and resolve overseas transaction risks will be significantly improved; more experience will be accumulated in effectively obtaining overseas approval, facing the uncertainty brought by overseas approval rationally; the ability to negotiate overseas transactions will be significantly improved, better protecting their interests at the transaction document level; and the ability to integrate overseas acquired parties will be significantly improved, achieving the commercial purpose of cross-border M&A by making cross-border M&A "serve me."

Fifth, the overseas layout of Chinese enterprises continues to accelerate. Against the backdrop of a new wave of "going global" by Chinese enterprises and global economic integration, more and more Chinese enterprises are accelerating their overseas layout. As one of the important means for Chinese enterprises to achieve overseas layout, cross-border M&A will continue to attract attention and favor, and the cross-border M&A market will usher in a broader development space.