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Due Diligence in China: Beyond the Checklists

ISBN: 978-1-118-46906-4
256 pages
December 2013
Due Diligence in China: Beyond the Checklists (1118469062) cover image

Description

A plain-English guide that demystifies the business landscape in China from a due diligence point of view

Due diligence is crucial to any business deal, and, thankfully, due diligence research has come a long way over the years. What used to be a cumbersome, time-consuming process has been standardized and systemized with generally accepted auditing frameworks and tools, such as the all-important auditing "checklists." But when it comes to doing due diligence in China, with its opaque regulatory system and byzantine accounting standards, all bets are off. In this book an acknowledged expert in the field takes you beyond the checklists to arm you with China-specific due diligence strategies, tools and techniques that go beyond what is typically part of the process.

  • Gives a detailed account of why conventional frameworks used in the west simply don't work in China
  • Provides first-hand accounts based on the author's years of experience as a private equity professional doing deals in China
  • Reviews, in-depth, the unique differences between corporations and businesses in China and those in the West and their implications for the due diligence process
  • Uses numerous case studies to guide the reader through an entire due diligence process for a firm in China
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Table of Contents

Preface xi

Acknowledgments xv

Chapter 1: The Business Landscape in China 1

Macro and Structural Domains 2

Corruption in China 6

Conducting Due Diligence in China versus Western Countries 26

Conclusion 30

Notes 31

Chapter 2: Due Diligence in China 33

Due Diligence for Different Types of Deals 36

Levels of Due Diligence 48

Key Considerations 56

Organization of Due Diligence Process 59

The Due Diligence Team 63

Independence of Vendor Due Diligence 64

Reasons for Poor Due Diligence 68

Reverse Takeovers 73

Dispute between SEC and CSRC 75

Conclusion 77

Notes 78

Chapter 3: Financial Due Diligence 81

Financial Due Diligence Checklist 82

Conclusion 139

Notes 140

Chapter 4: Operational, Commercial, Legal, and Other Due Diligence 143

Operational Due Diligence 144

Commercial Due Diligence 167

Legal Due Diligence 169

Balanced Scorecard (BSC) 178

How to Predict Bankruptcy—Altman Z Scores and Gearing 185

Optional Checklists 186

Conclusion 193

Notes 194

Chapter 5: Beyond the Checklists: Founder and Management 195

Founder Management Root 198

The Founder Background Check 200

Guanxi (Relationship) 216

Due Diligence on More Than One Founder 223

Summary of Background Check: SWOPEST and Tri-Background 224

Conclusion 228

Notes 229

Chapter 6: Beyond the Checklists: Hard Facts 231

Face-to-Face Meetings 231

Proportion Check 242

Site Visits 247

Due Diligence Goes One Step Deeper: The Four Deadly A’s 256

Conclusion 290

Notes 292

Chapter 7: Implementing a Due Diligence Workflow 293

Getting the Mind-Set Right 294

Formulating the Due Diligence Strategy 295

Forming a Team 300

Starting the Due Diligence Process 304

Conclusion 312

Notes 313

Chapter 8: Post Due Diligence and Case Studies 315

Preparing the Due Diligence Report 316

Due Diligence Outcome Review 316

Deal Structuring, Negotiation, and Deal Making 318

Post-Acquisition Due Diligence 318

Summary Models 319

Final Case Studies 327

Conclusion 347

Notes 348

About the Website 351

About the Author 353

Index 355

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Author Information

Kwek Ping Yong has more than ten years of private equity investment experience in China. Mr. Yong started his first USD China-focused growth fund in 2001 and has since made more than thirty investments in businesses there, across various industries, including manufacturing, mining, energy, food and beverage, and the retail sector. He has also planned and executed many successful exits through trade sales and pre-IPO transactions, and performed hundreds of full due diligence exercises for Chinese companies pre- and post-investment. Mr. Yong launched his first Chinese RMB private equity growth fund in 2010 with a total USD and RMB fund size of more than US$4 billion under management. Prior to joining Inventis, Kwek Ping founded an IT system integration company that was later merged and listed at the Helsinki Stock Exchange in Finland in 2000. His track record is well recognized internationally, and he is frequently invited to speak at international conferences and summits. Mr. Yong is an adjunct professor at Singapore Management University, where he developed and teaches private equity courses for the Financial Training Institute. In addition, he is a visiting lecturer at the Imperial College Business School, UK, and a Senior Fellow of the Wharton School, University of Pennsylvania. Kwek Ping Yong is the author of Private Equity in China: Challenges and Opportunities (Wiley), the first industry-focused book on the subject.

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Press Release

October 11, 2013
Wiley Announces Due Diligence in China—A Veteran’s First-hand Account of Conducting Due Diligence in China

Wiley today announced ‘Due Diligence in China: Beyond the Checklists’, a veteran’s firsthand account of conducting due diligence in China featuring current and relevant content straight from the horse’s mouth for accountants, lawyers, private equity practitioners and business managers looking to determine the benefits and liabilities of a proposed investment on Chinese businesses.

The author, Kwek Ping Yong, has more than twelve years of private equity investment experience in China. He started his first USD China-focused growth fund in 2001 and has made more than thirty investments there, across various industries including manufacturing, mining, energy, food and beverage, and the retail sector. He has planned and executed many successful exits through trade sales and pre-IPO transactions; and performed hundreds of full due diligence exercises, pre- to post-investment, for Chinese companies.

The book goes beyond providing discussions on traditional methods of conducting due diligence on Chinese companies. It provides the facilitation of conducting human due diligence on owners and the upper management, which is often left out from the conventional checklists.

Other insightful topics which are covered in the book include:

  • An overview of the business landscape in China and discussions on the unique characteristics of doing business in China
  • Getting to know the nature of a Chinese business environment with the four deadly A’s: Authorization, Abnormalities, Anticorruption, and Accounting fraud
  • Comprehensive and practical tools for evaluating Chinese companies with additional focus on dealing with personal, professional, political and social relations between internal people or groups and external parties

Additional materials include: due diligence checklists on financial, tax, operational, legal and environmental; an original Anti-Corruption Investigative Due Diligence (ACID) framework; and case studies in each chapter to emphasize the key learning areas.

The book also comes with a companion website (www.wiley.com/go/ddinchina) that provides latest updates on due diligence-related information, checklists, tools and diagrams for download.

Pricing & Availability

The suggested retail price of the print (hardcover) format is US$120.00 and US$79.99 for e-book formats (oBook, ePub, Adobe PDF and MobiPocket).

The book will be available from the Wiley Online Store (www.Wiley.com), and through all key online book retailers and major bookstores.

Wiley is a global provider of content and content-enabled workflow solutions in areas of scientific, technical, medical, and scholarly research; professional development; and education. Established since 1807, Wiley has been a valued source of information and understanding for more than 200 years, helping people around the world meet their needs and fulfill their aspirations.

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Press contact:
Sharifah Sharomsah
Wiley
skbsharoms@wiley.com
(65) 6643 8099

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