Legal Analysis On Equity Appraisal Of Foreign M&A

With the further development of industry upgrading and speed-up of the inflation of Chinese currency, the foreign M&A has become a major source of foreign capital investments, yet still, faces future enlargement of its volumes. In nature, foreign M&A is a trade between equal parties. Yet, Chinese laws and regulations have imposed mandatory rules upon foreign M&A, namely the approval procedure required. According to said laws and regulations, foreign M&A must be approved by relevant Chinese departments. The logic pinpoint of state intervention in foreign M&A is to implement the concrete industrial and business codes of our country. In the wave of foreign M&A, the asset appraisal industry has confronted with challenged and development opportunities. As a necessary procedure of foreign M&A, the equity appraisal has been underestimated and neglected among the scholars. The statutory procedure stipulated by the Provisions on Merger and Acquisition of Domestic Enterprises by Foreign investors of the Department of Commerce has made equity appraisal of great impact on the success of foreign M&A activity and deal parties’ procedural and substantial rights and duties. Essentially, equity appraisal is based on the assets behind the equity, yet possesses special requirements during appraisal of equity. In the precedent asset appraisal practice, the practitioners tended to substitute equity appraisal for asset appraisal or business value appraisal, which has caused negative influence on the foreign M&A in China. The correct implementation of equity appraisal leads to a fair trade and successful approval of foreign M&A. Thus it is fundamental to foreign M&A. This essay, based on the accrued theoretical and practical experiences on equity appraisal, analyzes the obstacles faced during equity appraisal. The author deems that the Chinese asset appraisal industry should rectify on the special requirements of equity appraisal by enacting them in the series documents of Asset Appraisal Standards released by the Asset Appraisal Association in China. The specific values types and appraisal methods must be clarified in those documents for reference. The author suggests that, the proper conduct of equity appraisal sets the fundamental seed for successful foreign M&A and its assignments of rights in China.