Date
25 March 2017
Hong Kong has a "bad complexity" — lots of highly specific requirements about how to do deals and how to report them. Photo: Bloomberg
Hong Kong has a "bad complexity" — lots of highly specific requirements about how to do deals and how to report them. Photo: Bloomberg

Why HK advisors are losing out on lucrative mainland M&A deals

In the early 2000, the central government unveiled China’s historic “Going Out” policy.

Since that time, hundreds of billions of dollars have flowed out of the country as Chinese firms gobbled up foreign companies.

Hong Kong’s law firms and investment banks looked poised to earn hefty commissions on these money flows as mergers need legal and financial advisors.

But many Hong Kong advisors have missed out.

Chinese companies largely chose US and British advisors — in many cases even for M&A deals at home!

Why did Chinese companies “go over” Hong Kong? What makes advisors from the United States and the United Kingdom so special?

In our research, we found that legal complexity is a key factor that determines the way Chinese companies choose their M&A advisors.

US and UK laws have more of a “good type” of complexity than Hong Kong law has.

Good complexity refers to numerous legal provisions that allow M&A advisors to structure very complex and profitable deals.

By contrast, Hong Kong has a “bad complexity” — lots of highly specific requirements about how to do deals and how to report them.

We also found that Hong Kong’s M&A advisors don’t differentiate themselves from the pack like their foreign rivals do.

They fail to offer mainland companies anything really new. We tracked advisors’ differentiation over time. We found that small and hungry advisors from emerging markets scored far better by offering additional services, like services to help mainland buyers manage the new company.

– Contact us at english@hkej.com

CG

The writer is a fellow at the Asian Institute for International Financial Law and formerly held posts at the World Bank, OECD, and Columbia University.

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