“Risk Solution for Chinese Enterprises to Go Out” Conference Was Held Successfully in Zhongyin Law Firm ------M&A and Reverse Breakup Fee Insurance
On February 15th,
2017, Zhongyin Law Firm held a conference on the theme of “Chinese Enterprise
Merger Risk Solution”. The meeting invited Ping An Insurance Deputy General
Manager of high-end Liability Insurance Division Mr. Ren Xiaoqiang to share the
innovation practices and advanced experience in the terms of mergers and
acquisition and reverse breakup insurance. Our firm’s CMC member and senior
partner Nian Penghe, Chen Yongxue, senior partner Wu Zetao, and other decade
lawyers engaged in domestic and foreign mergers and acquisitions business,
attended this meeting.
The followings are parts of
the highlights of Mr. Ren Xiaoqiang’s share:
[M & A Insurance Break Up the Deadlock]
Mergers and acquisitions
insurance has successfully landed ten years ago, the purpose is to resolve the
transaction risk of buyers or sellers, and provide guarantee for the risk of
compensation for breach of contract in the contract of merger and acquisition.
For example, after the completion of the delivery, if the information disclosed
by the seller is not in conformity with the facts, the buyers could get a
certain amount of compensation according to the purchased insurance, in order
to achieve risk transfer.
Erenow, enterprises are
through the establishment of funds charge account deposit to prevent risk. The
disadvantage of margin system is that buyers and sellers can’t reach a
consensus for margin level and the length of time to freeze funds.
[Reverse Breakup Fee Insurance Is Ready]
Beginning in the second half
of 2016, in order to prevent the risk of approval of U.S. CFIUS, various types
of mergers and acquisitions involved in the case of the reverse breakup fee.
Internationally, mergers and acquisitions insurance designed for CFIUS’s
approval risk landed less than two years, just realized the process from
guarantee to policy. In 2016, U.S. companies required several Chinese companies
in overseas mergers and acquisition transactions, to arrange of reverse breakup
fee insurance. According to the data display, from 2016 October, reverse
breakup fee has gradually become a rigid demand in mergers and acquisitions. In
the first quarter of 2017, Ping An Insurance will introduce the insurance that
multilateral approval risk as the core and multilateral trigger conditions.
[Mergers and Acquisitions Insurance Provides
Protection for Common Transaction RIsks]
M&A insurance is
introduced from USA, if the transaction takes place in America, the seller’s
agreement will require arrangements for mergers and acquisitions insurance for
90% possibility. In addition to USA, Germany, UK and other developed countries
in Europe and Australia, the mergers and acquisitions insurance market is
With the advent of the 2.0 of
Chinese enterprises going out, and the promoting of “Belt and Road” policy,
Chinese enterprises’ demand for mergers and acquisitions risk solution is
According to Mr. Ren
Xiaoqiang, the merger company’s financial statements, tax, business and
intellectual property risk has become a high incidence of mergers and
acquisitions default, employment is also one of the most recent acquisitions
From the latent period of
risk, within a year and a half after the delivery, is the peak of mergers and
acquisitions risk outbreak, insurance companies will determine the risk based
on the SPA (share purchase agreement) content. Under the normal circumstances,
the protection period is 5-7 years. In practice, each piece of information
disclosed behind will match a term of protection period, the longest is 7
[Mergers and acquisitions Risk With Chinese
From the perspective of
Chinese characteristic risk, foreign PE comes to China to acquire quality
assets, usually arranging to buy foreign insurance company’s acquisition
policy, however, foreign M&A insurance eliminate some of the Chinese
characteristic risk. Mr. Ren Xiaoqiang thinks can make the transaction smoothly
through the insurance way solving the questions that what seems to be a risk
but not a risk.
[What Could M&A Insurance Do for Mergers
For buyers, mergers and
acquisitions insurance can meet the judicial needs of dispute resolution,
improve solvency determination, maintain relationship with company management,
meet the tender requirements, improve bargaining power, and make the mergers
and acquisition process go on smoothly.
For sellers, it is convenient
to facilitate the seller clean exit after the completion of the transaction,
and reduce potential legal liability.