Translator：Wang Qiyu

On November 23, 2023, at 11:30 AM, Shanghai Landing Law Offices hosted a seminar on the theme of due diligence in merger and acquisition (M&A) projects. Sun Xian, Senior Partner and Deputy Head of the Financial Department at Shanghai Landing Law Offices, shared insights and exchanged ideas with attending legal colleagues based on years of M&A project experience.

Senior Partner at Shanghai Landing Law Offices, Sun Xian

01 What is Mergers and Acquisitions (M&A)?

M&A involves mergers (absorption mergers, new establishment mergers) and acquisitions (equity acquisitions, asset acquisitions). M&A includes forward, reverse, horizontal, and vertical mergers. The key difference between M&A and equity investment lies in the transfer of control. For lawyers, M&A involves intricate legal relationships due to the dynamic nature of the target, a "living" company in constant flux.

02 The Role of Lawyers in M&A Projects

From the perspective of the acquiring party, the role of lawyers varies in different types of projects:

- In capital market M&A projects, where financial advisors play a leading role, lawyers act more as tools, participating mainly in legal due diligence, resolving legal issues, negotiation involvement, drafting transaction documents, providing legal opinions, and assisting in the closing process.

- In non-capital market M&A, lawyers take a leading role, managing the M&A process. They design transaction structures, financing structures, and restructuring structures. Lawyers also conduct due diligence, draft transaction documents, assist in meeting pre-closing conditions, manage the closing, and handle post-closing matters.

- In M&A with a future capital market goal, lawyers also play a leading role, assisting the acquiring party in achieving M&A objectives, assessing whether the seller meets IPO and backdoor listing conditions based on legal due diligence.

- In cross-border M&A projects, where large projects are generally led by investment banks, lawyers are mainly involved in M&A management, selecting overseas intermediaries, managing processes and timelines, and overseeing domestic and foreign approval procedures before completion.

From the seller's perspective, the role of lawyers primarily involves conducting due diligence on the buyer's creditworthiness and addressing key legal issues in M&A projects.

03 Legal Due Diligence in M&A

Legal due diligence varies significantly for different types of projects. For example, in equity investment, due diligence focuses on whether a future exit is feasible. In corporate listings, due diligence centers on meeting issuance conditions, listing requirements, and disclosure obligations. In M&A projects, the focus is on whether the M&A (business) objectives can be achieved.

The scope of due diligence typically includes assets, liabilities, business operations, personnel, approval procedures, and historical evolution. Different projects will have different due diligence requirements. For instance, in the legal due diligence of acquiring control in a listed company, investigations are needed into the target company's corporate control, independence, compliance with relevant business rules, information disclosure, and the presence of compliance issues such as insider trading.

After the seminar, Sun Xian engaged in more in-depth discussions and sharing on key issues with the attending guests, receiving unanimous praise from the participants.