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CSSL’s transaction methodology helps clients invest profitably in China by following integrated steps focused on realizing the value China investments can create. We assist our clients:
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Identify and prioritize the criteria fitting a China investment. |
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Develop and validate strategies aligned with client objectives. |
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Profile acquisition candidates. |
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Develop and negotiate deal terms. |
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Perform operating, financial and strategic due diligence |
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Execute acquisitions. |
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Integrate investments. |
Typically, a transaction proceeds through these steps
Evaluating the Investment Strategy:
Clarifying Investment Criteria:
Multiple strategic objectives drive a comprehensive strategy. This is especially true when considering emerging market investments in China. Helping clients define their investment criteria is the first step to creating an executable investment strategy.
| What are the Financial Criteria? |
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•What are the short term and long term revenue goals?
•What EBIT goals?
•What scale of investment is envisioned?
•Will it impact share holder value?
•What factors might analysts perceive as positive? |
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| What level of risk is acceptable? |
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•What financial risks are tolerable?
•What management risks?
•What factors could have a negative impact on current business? |
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| What strategic capabilities are most attractive? |
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•Market access?
•Broad distribution?
•Enhanced local management?
•New brand as acquisition?
•Local manufacturing?
•R&D for local markets? |
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| Which market sectors are most opportune? |
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• What market size creates an adequate base for entry?
• Which sectors are forecast for high growth?
• What opportunities in which markets? |
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| What criteria qualifies potential candidates? |
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• Development capabilities?
• Distribution model?
• Geographic penetration?
• Current revenue? 5 year growth rate?
• Available capital?
• Management strengths & weaknesses?
• Competitive conflicts? |
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| How does the value chain work? |
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• How do potential customers connect to the value chain?
• What are the optimal market access points to invest?
• How many investments might be required? |
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Focusing on Value:
We focus on maximum value creation by mapping the balance between the Investment Criteria and the Financial Impact on the intended investment.
Qualifying Acquisition Targets:
Based on the clients investment objectives and criteria, we conduct a search for candidates
that fit the requirements. Our descriptive profiles of target candidates typically focus on these
Key outcomes:
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Determine if candidates operationally and strategically fits investment criteria. |
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Identify the target’s market strengths and weaknesses. |
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Determine the value creation opportunities as a basis for negotiating terms with candidates. |
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Outline and assess the options for structuring an investment. |
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Provide substantial market intelligence permitting clients to: |
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Refine its assumptions about the market sector in China. |
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Further evaluate its China entry options should it determine other partners or structure is more suited to its needs. |
BUILDING COMPANY PROFILES:
During the Company Profile stage, senior management at targets companies will be expected to share historical, operating and non-confidential market information. Access to some key operating managers and selected customers should also be provided. Key areas of inquiry include:
HISTORY |
• Historical background
• Top management background
• Turning points in business development |
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OPERATIONS |
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• Current business operation
• Organization structure
• Operating capabilities
• Marketing activities |
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STRATEGIC |
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• Growth plans and strategies
• Reputation in the market
• Outstanding disputes
• Insight into the China’s PDS Market |
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RESEARCH METHODS AND SOURCES:
Core information will be obtained from face to face interviews with Sr. Management, permitted operating managers, customers, competitors and suppliers.
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Quantitative questions will be developed to create a rich fact base. |
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Qualitative questions will solicit personality, attitudinal and leadership characteristics among
senior management. |
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Interview data will be supplemented with desk research focused on public information about
the candidate and its market sector in China. |
LIMITATIONS:
Much of the information collected will be limited to statements made by management without supporting documentation to verify or qualify the statements. Later due diligence will rely on confidential information and documentation to verify assumptions in both stages.
Negotiations and Due Diligence:
After a PRIMARY CANDATE is selected, terms of the investment are negotiated and a Letter of Intent is signed. The CSSL team, along with a client’s other professional advisors, has helped many foreign companies negotiate practical and sustainable acquisitions in China.
CSSL performs Operational, Financial and Strategic Due Diligence to achieve these objectives:
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Develop an audited and verifiable fact base to measure the target suitability based on the terms of the LOI. |
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Clarify and verify issues arising in earlier investigation. |
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Determine quantitative and qualitative strengths and weaknesses of the acquisition. |
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Uncover tangible or intangible negative issues indicating the client should exit the transaction within the guidelines of the LOI “exit clause”. |
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Determine future course of action. |
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Create approach to final contract terms focused on realizing maximum value potential. |
CONDUCTING DUE DILIGENCE:
During Due Diligence, confidential legal, financial and planning documents are required for
review and audit by professional representatives which may include legal and accounting
personnel as well as CSSL. Typical due diligence investigations include:
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CORPORATE |
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• Incorporation Documents
• Business license
• Articles of Association
• Scope of work
• Board of Directors
• Shareholders
• Subsidiaries |
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FINANCIAL & LEGAL |
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• Operating statements
• Cash flow
• Assets
• Liabilities
• Budgets and forecasts
• Pending & past litigation
• Regulatory investigations |
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OPERATIONS &
STRATEGY |
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• Employment: staff, terms, benefits, compliance
• Equipment & capacity
• Sales & marketing
• Customer satisfaction
• Mgt. Background &
Objectives |
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RESEARCH METHODS AND SOURCES:
Information is obtained from target’s internal documents. Face to face interviews with senior.
management and executive staff will be conducted to detail and clarify outstanding issues.
Focus group discussions may be used to augment operating information.
External issues that came up during earlier discussions and issues outlined for due diligence
will be checked and verified with customers, vendors or competitors.
CSSL will conduct desk research and data compilations as required.
LIMITATIONS:
Chinese companies typically maintain 2 sets of books to minimize taxes. Access will be required to both
sets to arrive at an accurate financial picture of the target.
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