Mergers and acquisitions (M&As) are emerging as an important means of achieving growth for Chinese companies. A combination of macroeconomic, political and business drivers will drive continued growth in M&As in China. Yet numerous global studies suggest that many M&As fail to deliver their intended outcomes. The odds of success are stacked against Chinese companies who lack the experience and capabilities in leveraging M&As to drive value. Chinese companies, along with many of their global peers, need to master the complex capabilities and skills required in forming and managing M&As to enjoy sustainable growth.

This paper focuses on M&A driven by Chinese companies, where they are the acquirer of either domestic companies or foreign companies in cross border transactions. M&A can be a very successful growth strategy for Chinese companies, if it is managed appropriately. Chinese companies are struggling to maximize full value from M&As, as their deals become increasingly complex. The largest obstacles facing Chinese companies are the lack of experience capabilities and skills. They can benefit from learning best practices from companies that have built a successful track record in M&A as a part of their strategy-and we have called them "serial acquirers".

The key to maximizing value from M&A is to first do the right deal, and then, do the deal right. Chinese companies need to build experience and capabilities in three key phases, namely, developing a winning M&A strategy, evaluating the target, and managing and monitoring post merger integration. The core driver in all these phases needs to be focus on defining and delivering the planned benefits (often referred to as synergies).

Chinese companies need to become more disciplined in establishing a clear M&A strategy which aligns with corporate objectives. They should proactively identify potential targets that fit the M&A's objectives, narrow down the best targets for assessment, and build a business case that includes synergies beyond the traditional focus areas.

In conducting a comprehensive assessment of the potential target, Chinese companies should also consider the sustainability of the business model and operations of a potential target, on top of financial and legal aspects as under the typical definition of "due diligence".

Effective post merger integration is the key as most benefits would be lost at this stage if the integration is not managed properly. Chinese companies need to develop a clearly defined integration plan, identifying the most critical areas to integrate, deciding the priorities for and extent of integration, and the approach to integration. They need to ensure smooth transition to minimize disruption to key takeholders. This would involve setting up a program management office, proactively managing change and defining new organizational roles and responsibilities. After that, they need rigorous implementation and monitoring with a view to achieving the planned synergies.

Developing core capabilities on M&A including an experienced team and the right tools and access to partners, is critical for success. Companies in China are strategically using external expertise while building up in-house M&A talent pool.

This white paper was published in July 2008.

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