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Due Diligence in China: Beyond the Checklists

Due Diligence in China: Beyond the Checklists

Author: Kwek Ping Yong
Publisher: John Wiley & Sons
ISBN: 9781118469064
Published In: December 2013
Format: Hardback , 360 pages
Jurisdiction: China ? Disclaimer:
Countri(es) stated herein are used as reference only

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Contents
Author

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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

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

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.