Asia Briefing : Cultural differences hold back M&A market

There has been a lot of discussion about level playing fields between the West and China in terms of doing business recently, but one report last week illustrates just how different expectations are, while still pointing to a growing market.

More than two thirds of US and Chinese firms in the entertainment, advertising and digital media sector expect investment and M&A activity between the two countries to rise in the next 12 months. However, deals will vary widely in size and structure because of different expectations about rules and information exchange.

Partnerships
The report, by the law firm Manatt Phelps & Phillips in association with Mergermarket, is based on 100 interviews with prominent American and Chinese executives, as well as investment bankers and private equity practitioners.

More than half of Americans polled said they would most likely consider companies and assets valued at $250 million (€187 million) or less, mainly to gain a foothold in China. And while Chinese regulators will not allow US bidders to acquire controlling interests in these sectors, the US firms will be looking at strategic partnerships and joint ventures.

From the Chinese side, respondents are looking for investments and M&As in social media and multimedia distribution. They are looking to make bigger deals too, and they want controlling stakes in US targets.

The respondents say their aim is not primarily to build shareholder value, but to bring new content or technology back to China. However, some potential Chinese bidders feared Washington might block acquisitions for reasons such as national security concerns.

Negotiations
For US businesses, performing effective due diligence is the most significant obstacle to acquiring companies in the Chinese advertising, entertainment and digital media industries, as accessing the required information to enter the intermediate stage of negotiations is often made difficult by Chinese business owners.

The report emerges just days after a summit between US president Barack Obama and China's president Xi Jinping which sought to paper over growing differences between the world's two biggest economies.

Majorities on both sides of the Pacific expect the uncertain US-China political relationship to significantly impact deal making and investment activity.