Is it necessary to conduct a legal due-diligence exercise in a merger and acquisition transaction in China?
Certainly. Due to the general lack of transparency or proper regulations in China, many Chinese companies may have certain irregularities somewhere in the course of its business. For example, the director of a company may deliberately fail to file the registration of title to a property in order to save costs. It is imperative that a foreign investor resolves any irregularities there may be before entering into the merger and acquisition transaction. Therefore, conducting a legal due diligence exercise is often just as important as conducting a financial due diligence to determine the viability of the target company in a merger and acquisition deal.