In recent years, the momentum of overseas mergers and acquisitions by Chinese companies cannot be underestimated, and has created a wave of mergers and acquisitions in the United States. Chinese entrepreneurs can immigrate to the U.S. by acquiring U.S. companies, namely, the Small- and Medium-Sized Enterprises (SMEs), and for those Chinese executives selected for assignment to the U.S., they can also obtain a U.S. green card (occupational immigration EB1C) through acquisition.
For Chinese investors, acquiring a U.S. company with established market size and profitability is an excellent opportunity to tap into and quickly enter the huge U.S. market. So, how to successfully acquire a U.S. SME? WANG LAW LLC ( LAW FIRM) , after a large number of case experiences, now mainly focuses on the analysis of the acquisition price of $10 million or less, the acquired company’s employee size of less than 100 people in the United States small and medium-sized enterprises.
The procedures and steps for acquiring a U.S. SME are generally divided into the following phases:
- initial negotiation and identification of the acquiring entity;
- due diligence and signing of the transaction agreement;
- transition monitoring, approval and delivery; and
- subsequent integration and operation.
The first step is to conduct preliminary consultations to determine the main body of the acquisition.
Chinese investors can determine their own positioning based on the enterprise’s industry conditions, their own assets, operating conditions and development strategy, form an acquisition strategy, and through intermediary recommendations or business interactions to discover the acquisition target, the two sides can conduct preliminary negotiations on business terms, such as the number of shares to be acquired, the purchase price, the direction of business development, and the treatment of the original executives. It is crucial to understand the reasons for the seller’s disposal of assets in order to grasp the issues of greatest concern in the transaction; it is also necessary to consider the approximate time required for the acquisition process, so that both parties can reach an agreement on the objectives and determine the intention to acquire. Domestic enterprises to acquire U.S. companies, can be part of the acquisition, can also be all shares of the acquisition, but for the acquisition through the acquisition of a green card, then, do not need to acquire the full amount of the acquisition, only need to acquire more than half of the shares can be. The acquired U.S. company does not necessarily need to operate the same business with the domestic head office, the industry is very broad, can be a chain of hotels, car dealerships, trading companies, training institutions, wineries and other industries.
In the second step, due diligence is performed and the purchase price is formulated.
After the initial negotiation and determination of the acquisition intent, both buyer and seller need to start assembling their teams. Generally speaking, there are technical, commercial, legal, financial and board members involved. Of course, due diligence through legal or financial intermediaries is a much smoother channel than directly requesting due diligence from the acquired company. Therefore, depending on the needs of the transaction, the team will also engage external investment banks, accounting firms, law firms and other expert consultant teams. After signing a confidentiality agreement with the target company, the investor can conduct financial, commercial and legal due diligence on the target company in order to obtain more detailed information, including the target company’s financial situation in recent years, sales of products, the use of production equipment, the shareholding structure and so on. From the legal point of view, the investor needs to ensure that the acquisition target is valid and legal, and that there is no behavior prohibited by the court or administrative order. After fully grasping the real situation of the acquisition target, a preliminary acquisition offer can be made based on due diligence, roughly as follows: price, transaction structure, source of funds and so on.
In the third step, the share purchase contract is signed and the acquisition is implemented.
After an exhaustive on-site investigation, the target company is given a valuation, and the acquisition price is confirmed after comprehensive consideration, at which time the acquisition consideration remains the core. After the buyer and seller agree on the price and text, the two sides determine the acquisition method, pricing model, acquisition payment method (cash, liabilities, assets, equity, etc.), the production of legal documents, to determine the post-acquisition management staffing arrangements, the solution for the original employees and other related issues, and sign the transaction agreement or share purchase contract. Generally like we propose the acquisition price within 10 million dollars, the acquired enterprise employees in less than 100 small acquisitions, the share purchase agreement can be signed at the same time to complete the transaction; large acquisitions, usually signed before the delivery (need to be intermediate in order to obtain government approval).
The step 4 is Transition monitoring, approval and delivery. The signing of the share purchase contract is not the end of the acquisition; the time between the signing of the contract and the delivery of the shares can be short or long, depending on the approval process. The first is the approval of the transaction by the shareholders’ meeting, where a sufficient number of shareholders of the target company have approved the transaction; the second is obtaining governmental approvals or filings. Approval by Chinese government departments and other legal system support issues in takeovers.
- Approval by the Chinese Government: Approval by the Ministry of Commerce (MOFCOM)/Local Commerce Commission (LCC): issuance of an Overseas Investment Certificate (OIC); Development and Reform Commission (DRC): issuance of a letter of approval; and the Bureau of Foreign Exchange (BFE): foreign exchange approval for capital projects. The State Council amended the Catalogue of Government Approved Investment Projects in early December 2013, significantly reducing the approval requirements for Chinese companies investing overseas. Only projects involving sensitive countries and regions or sensitive industries, or Chinese investment of more than 1 billion U.S. dollars shall have the approval of the National Development and Reform Commission (NDRC), in addition to investment of more than 300 million U.S. dollars in projects reported to the NDRC for the record. In other cases, the central enterprises shall report to the Ministry of Commerce for the record, and the local enterprises shall report to the provincial government for the record. In this way, most Chinese companies will not need to obtain prior approval from the Chinese government for their outbound investment projects, simplifying the process.
- Approval by U.S. government agencies: foreign investment review, antitrust, etc. Depending on the nature and amount of the M&A project, some projects need to be reviewed by the U.S. Department of Justice or the Federal Trade Commission, sometimes including the U.S. Committee on Foreign Investment (CFIUS), and the relevant procedures are completed with no comments or objections. Foreign acquisitions of U.S. companies are also subject to U.S. antitrust and export control compliance review (Export Control). Foreign acquisitions are subject to U.S. antitrust and export control compliance. If the amount of the acquisition is very large, according to the Hart-Scott-Rodino Act, it is necessary to do the pre-merger notification (pre-merger notification) program, and the current amount of the requirement is more than 63 million U.S. dollars of mergers and acquisitions must be declared for review. When foreign capital acquisitions of U.S. companies, especially those involving sensitive high-tech projects, in general, information security, defense, telecommunications, energy, aerospace, transportation (ports, airports, shipping) and other areas corresponding to the higher sensitivity of national security, the need to further submit the relevant export control (Export Control) aspects of the application for review, CFIUS needs to be done mergers and acquisitions are “threaten to undermine U.S. national security” analysis and investigation, within 30 days of receiving the application to decide whether to withdraw or further investigation. All of these uncertainties need to be specified in the M&A contract to counteract some of the risks. While major asset acquisitions are subject to antitrust laws, ordinary asset sales are not. In the U.S., when a Chinese company wants to buy a U.S. company, their biggest concern is whether the merger will shift all the jobs to China. This is a very important question. If you can prove that through the M&A, not only will you not take away or shift existing jobs, but you will also invest in the existing company and help it expand, create more jobs, and boost local taxes and the economy, then they will treat the acquisition completely differently.
- Practical experience. In practice, the investor hopes to achieve the immigration goal through the acquisition. USCIS does not require Chinese enterprises to acquire foreign capital must be approved by the Chinese government, the Immigration Bureau also did not personally go to China’s specific enforcement procedures, its focus is on the investor for the acquisition of U.S. businesses, the flow of funds path, as long as it can be proved that the acquisition of funds to the ins and outs can be. For Chinese investors, if through the EB5 direct acquisition of immigrants, you need to prove the legitimacy of the source of funds; if it is through the EB1C multinational executives immigrant applications, you need to prove that the funds out of the parent company in China, and ultimately into the U.S. target company, with a clear path of capital flow can be. Here, according to our experience, the Chinese parent company can be directly injected into the U.S. company, can also be injected into the name of the individual shareholders and other ways to flow, which does not need to be audited by the Chinese government, the program is simple.
In the fifth step, the project is delivered and the investor pays the price to complete the transaction.
Adjustment of the price after the period and claims: The price to be paid is generally adjusted according to the target company’s finances, based on the amount of net operating capital; and there are no significant negative changes in the target company from the day of the signing of the merger and acquisition contract to the time of delivery. After delivery, the target company shall also pay compensation to the Chinese investors if there is a claim event within a certain period of time for which the target company should be responsible as agreed in the transaction documents. It is a prerequisite for the delivery of the target company that the investor complies with the agreed responsibilities of both parties and that the representations and warranties of the investor are true. Transitional services. After the merger, the original executives of the target company will need to renegotiate their employment terms if they continue to work for the company; if the investor does not intend to continue to employ the same executives under the original shareholders, the target company can take 3-6 months to help the new shareholders take over the management of the company and provide transition services.
Step 6: Subsequent integration and operations, and closing of the merger and acquisition.
For enterprises, it is not enough just to realize the merger and acquisition of enterprises, but finally to integrate and fully mobilize the resources of the target enterprise, and to integrate the business of the target company, including sorting out and managing the personnel, business, finance, and the construction of upstream and downstream channels, so as to produce the expected benefits. Especially the integration after cross-border M&A will face more challenges.
M&A Transaction Considerations:
- Focus on the target company’s representations and warranties. This section deals with representations and warranties made by the target company to the buyer on matters of material relevance to the company. However, if the target company’s representations and warranties are “incomplete” or disclosed in too general a manner, and buyer’s counsel, due to lack of experience, fails to request the target company to make representations and warranties on a material and relevant matter, the target company will generally not be liable if the problem ultimately arises from the failure to make representations and warranties.
- Avoid business risks as much as possible: Due diligence must be thorough and exhaustive. Avoid unnecessary business risks, such as hidden debts or lawsuits of the target company. If there are claims in the future: Generally speaking, it is difficult to “return” an M&A transaction once it is settled. Define the main business and develop it steadily. Restrict the target company’s competitive business activities after the M&A transaction is finalized. Therefore, it is prudent to define the target company’s main business. If the definition is too narrow, it will be less restrictive to the original shareholders, who will be able to step down from the company and carry out similar business activities that may compete with the company’s business. Especially after the completion of the acquisition, the Chinese company should pay attention to dealing with labor and management as well as the relationship with the local government, and obtain their understanding and support; in the integration of the enterprise, make good use of the existing management and human resources, and try to avoid the “big blood change” and “big shake-up”. In the integration operation, the existing management and human resources should be utilized well, and “big blood change” and “big shock” should be avoided as much as possible.
- In cases where green cards are sought through the acquisition of a business, attention is given to the name in which the investor is making the acquisition, the determination of affiliation between the United States company and the overseas company, and, most importantly, job creation!
Step 7, Immigration to the United States: Pathways for Corporate Executives and Employees
In the United States, there are multiple pathways for company executives and employees to obtain immigration status. These pathways involve different types of visas, including L1A, L1B, EB1-C, and H1B. These immigration pathways, as well as their requirements and application processes, are described below.
- L1A visa: The L1A visa is available to senior managers or executives of multinational corporations to enable them to transfer to work in a U.S. branch or subsidiary of a U.S. company. Below are the main requirements for applying for an L1A visa:
- Within the last three years, served as a senior manager or executive in a foreign company and held the position for at least one year.
- Will hold a similar senior management or executive position in a U.S. branch or subsidiary of a U.S. company.
- The company must qualify as a multinational corporation and have a legal office or subsidiary in the United States.
2. L1B visa: L1B visas are available to employees with specialized knowledge or skills within a company that enable them to transfer to work in a U.S. branch or subsidiary of a U.S. company. Below are the main requirements for applying for an L1B visa:
- Holding a position with specific specialized knowledge or skills in a foreign company for at least one year within the last three years.
- Will be working in a U.S. branch or subsidiary of a U.S. company in a job related to specialized knowledge or skills.
3. EB1-C immigration:
EB1-C immigration is available to senior managers or executives of multinational corporations to enable them to obtain permanent resident status in the United States. Below are the main requirements for applying for EB1-C immigration:
- Within the last three years, served as a senior manager or executive in a foreign company and held the position for at least one year.
- Will hold a similar senior management or executive position in a U.S. branch or subsidiary of a U.S. company.
- The company must qualify as a multinational corporation and have a legal office or subsidiary in the United States.
4. H1B visas:
H1B visas are available to foreign employees with specialized skills or expertise in a particular professional field, enabling them to work for a U.S. company. Below are the main requirements for applying for an H1B visa:
- Must have a bachelor’s degree or higher in a specific area of specialization and a job position that requires specialized skills or expertise in that area.
- The company is required to file a petition with the U.S. Department of Labor and certify that the position requires specialized skills or expertise that cannot be filled by a suitable employee within the United States.
5. Other migration routes:
In addition to the visa types listed above, there are a number of other immigration pathways that allow company executives and employees to obtain U.S. immigration status, such as EB-5 immigrant investor, EB-2 or EB-3 immigrant professional, and family immigration. The requirements and application process for these pathways may vary, so they need to be evaluated and applied for on a case-by-case basis.
Conclusion:
Through the above immigration pathways, company executives and employees may have the opportunity to obtain immigration status to the United States through a small business acquisition. However, each immigration route has its own specific requirements and application process, and applicants need to choose the most appropriate route based on their own circumstances and prepare sufficient application materials to ensure a smooth immigration process. It is also recommended that applicants seek the assistance and guidance of a professional immigration attorney during the application process to ensure that the application process goes smoothly and that they are ultimately successful in obtaining their immigration status.