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Cultural Differences – Communication and Expectations
A key factor in the success of a succession deal with Chinese investors lies in intercultural communication. While, from a Chinese perspective, personal relationships and building trust play a central role in the transaction process, from a German perspective, the focus is on the purchase agreement and the accompanying transaction documentation.
In addition, differing expectations must be taken into account during the initial contract negotiations and throughout the negotiation process. While German sellers expect clear deadlines and binding commitments, Chinese buyers seek flexibility. In connection with the execution of a Letter of Intent (LoI) or Memorandum of Understanding (MoU), it should also be borne in mind that, from a Chinese investor’s perspective, this already constitutes a legally binding contractual agreement, and subsequent substantial changes can often be met with a lack of understanding. Misunderstandings can arise if these cultural differences are not consciously taken into account. An intercultural consultant or an experienced M&A advisor with expertise in China can help bridge this gap.
The M&A Process—Specifics for Chinese Buyers
The M&A process also differs legally when dealing with Chinese investors. In addition to the usual phases—LOI, due diligence, contract negotiations, and signing/closing—additional approval steps on the Chinese side must be taken into account. For Chinese investors, every investment abroad—so-called “outbound direct investments” (ODI)—is subject to approval. This means that a Chinese buyer may not pay the purchase price for the company until it has received all necessary approvals from the Chinese authorities.
The approval process can take several weeks to months and should be factored into the timeline and transaction documentation. Sellers must therefore be prepared for a certain time lag between signing and closing.
Merger Control
Merger control under antitrust law by the Federal Cartel Office is a key aspect of corporate succession involving Chinese investors. A notification requirement applies if certain revenue thresholds are exceeded—for example, a combined global revenue of the participating companies exceeding EUR 500 million, as well as domestic revenue exceeding EUR 50 million and EUR 17.5 million for each of the participating companies.
If a notification is required, the transaction must be submitted to the Federal Cartel Office prior to completion. The review may take several weeks, particularly in cases involving complex market conditions or high market shares. In such cases, the period between signing and closing is significantly extended—a factor that should be taken into account in the timeline.
Even though the formal responsibility for filing generally lies with the buyer, the seller should verify (or have verified) at an early stage whether a filing requirement exists and whether the relevant thresholds are met. Failure to file a notification may result in a prohibition on closing the transaction, fines, or, in extreme cases, the reversal of the transaction. Therefore, close coordination with the buyer and, if necessary, a preliminary antitrust review by experienced advisors is recommended.
FDI Review – Investment Control by the BMWE
A key element in the participation of Chinese investors—as well as in the participation of investors from any other non-EU/non-EFTA country—is the foreign investment review conducted by the Federal Ministry for Economic Affairs and Energy (BMWE) under foreign trade law.
The purpose of such a review is to protect public safety and order in the Federal Republic of Germany in connection with the direct or indirect acquisition of a German company or a stake therein.
Apart from transactions involving certain defense equipment or IT security products, which are subject to sector-specific investment reviews, an FDI review may also be required if an investor from a non-EU/non-EFTA country acquires at least 10% of the voting rights in a German company that operates critical infrastructure as defined by the law or engages in an activity of particular security relevance (so-called cross-sector investment review). Depending on the category to which the target company belongs, a review threshold of at least 10% of the voting rights applies (including, among others, cloud computing services, media industry, etc.) or at least 20% of the voting rights (including critical technologies such as semiconductors, artificial intelligence, quantum technology, etc.).
Sellers should have it verified at an early stage whether a reporting obligation exists or whether a so-called application for a certificate of no objection must be submitted to the BMWE in order to avoid potential prohibitions, protracted review procedures, or—in the “worst-case scenario”—the reversal of the transaction.
Conclusion
The entry of Chinese investors into German companies offers many opportunities—not least in terms of new markets and capital inflows. However, the path to achieving this is legally and culturally challenging. Sellers are well advised to structure the process in a systematic, interdisciplinary manner with the assistance of experienced advisors. This is the only way to ensure that both legal requirements and cultural expectations are met—for a sustainable and successful business transfer.
