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The Latest Interpretation of
General Due Diligence
Speaker : Avv. Marco Mazzeschi
2018 China Enterprises Going Global Risk Conference
Zhuhai , China | 20.03.2018
Organized by Jiang Tai Global Assistance Alliance
2
SPEAKER
Avv. Marco Mazzeschi
Fonder of MAZZESCHI S.R.L.
1.2018 Who’s Who Legal : Marco
Mazzeschi "is everyone's favorite
Italian lawyer – He is fantastically
knowledgeable and dynamic." He
is the most highly recommended
immigration lawyer in Italy in this
year’s research
2.Admitted to the Milan Bar
Association (1988)
3.Member of American
Immigration Lawyers Association
(AILA)
4.Member of International Bar
Association (IBA)
5.Member of editorial board of the
journal “Asian Business Research”
INDEX
1. What is a Due Diligence and why is it important
2. Main goals of a Due Diligence
3. Tips for legal due diligence
4. Things to avoid
5. Case Studies
Would you buy a used car
without checking if the engine works?
Why buy or invest
in a company...
without checking
its accounts,
liabilities and
possible losses?
Evaluate
hidden
risks
finding
potential
liabilities
Prevent
unexpected
losses
Understand
financial
situations
The process of evaluating a business situation from all aspects before
making a decision. It is performed to protect both parties, but mainly the
purchaser:
1. What is a Due diligence and why is it important
Evaluate
Value
Save
Costs
Avoid
Risks
Discover
Losses
Due
Diligence
Evaluate Value:
To evaluate if the
TC business can be
a value for the
Buyer and can be
integrated in the
Buyer’s operations
Save Costs:
To discover if
acquisition of TC
can generate cost
savings
opportunities
Avoid Risks:
To avoid any other
risks that
Purchaser can
have in purchasing
TC
Discover Losses:
To discover what are
the possible hidden
liabilities and/or
losses that the TC
could suffer after
the acquisition
2. Main goals of a Due Diligence
04
03
02
01 STUDY
LOCALS
KNWOLEDGE
CHECK LIST
INTEGRATION
Set your goals
Study company
business, have a
clear ideas of your
goals. Do not
disperse your
energies
Appoint local experts
Use local experts and
use them wisely. They
know local laws and
customs
Agree A Clear Scope
Draft a detailed
questionnaire with
each professional
adviser at the outset
After Closing Plan
Be ready in advance
with a clear plan on
how to manage the
Company
3. Tips for Legal Due Diligence
Don’t scrimp
To save money, you could be
tempted to forgo legal due
diligence and rely only on
warranties and indemnities: don’t
do it!
Don’t leave your
advisers in the dark
Make sure the counsels you
select talk each other and appoint
someone of your Team to
coordinate their work
Don’t forget the hot topics
Do not focus only on assets and
business operations, also legal,
tax and other areas can cause
heavy losses to the TC
Do not underestimate
cultural differences
You must be ready to take control of the
TC immediately after acquisition but
respect and understand local culture
4. Things to avoid
TCL refused to hire M&A experts and did not conduct any DD.
After acquisition, TCL:
• Realized that Thomson products were old and tired and that
Thomson had suffered a $ 100 Million losses the previous
year
• Did not have to assimilate Thomson’s people and did not have
Chinese managers with adequate international experience.
In the 2 years after acquisition Thomson accumulated $ 680
Million of losses and the third year TCL closed its European
operations
5. Case Study 1
TCL $ 560 Million acquisition of Thomson
CITIC Pacific, a subsidiary of the CITIC Group, purchased for 4.2
Billion AUSD the extraction rights in a mining area in Australia. CITIC
did not carry an extensive DD and several factors resulted in a
substantial increase of costs and investments after Closing. CITIC did
not take into account:
• Labor issues caused by cultural differences between Chinese and
local workers
• High labor costs that CITIC could not bypass by using Chinese
workforce (visa restrictions on foreign workers)
• Costs deriving from mandatory environmental protection
• Australian government increased mining taxes by 40%
5. Case Study 2
CITIC Pacific investment in Australian iron ore mines
Qianjiang Motors acquired Benelli Motorcycles, an Italian
manufacturer of motorcycles from bankruptcy. Only the
sales director, the part quality manager, and the managing
director were transferred from China to Italy. Several post-
merger integration issues including national cultural
differences with respect to attitudes, lifestyles, and
approaches to business management emerged. The
accounting and management information systems of the
two companies did not go through post-merger integration
either. Acquisition failed and Qianjiang sold business with
losses.
5. Case Study 3
Qianjian Motors acquires Benelli Motorcycles
Avv. Marco Mazzeschi
mm@mazzeschi.it
+39 0057926921
www.mazzeschi.it
MAZZESCHI S.R.L.
The leading immigration
service provider in Italy

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The latest interpretation of general due diligence

  • 1. The Latest Interpretation of General Due Diligence Speaker : Avv. Marco Mazzeschi 2018 China Enterprises Going Global Risk Conference Zhuhai , China | 20.03.2018 Organized by Jiang Tai Global Assistance Alliance
  • 2. 2 SPEAKER Avv. Marco Mazzeschi Fonder of MAZZESCHI S.R.L. 1.2018 Who’s Who Legal : Marco Mazzeschi "is everyone's favorite Italian lawyer – He is fantastically knowledgeable and dynamic." He is the most highly recommended immigration lawyer in Italy in this year’s research 2.Admitted to the Milan Bar Association (1988) 3.Member of American Immigration Lawyers Association (AILA) 4.Member of International Bar Association (IBA) 5.Member of editorial board of the journal “Asian Business Research”
  • 3. INDEX 1. What is a Due Diligence and why is it important 2. Main goals of a Due Diligence 3. Tips for legal due diligence 4. Things to avoid 5. Case Studies
  • 4. Would you buy a used car without checking if the engine works?
  • 5. Why buy or invest in a company... without checking its accounts, liabilities and possible losses?
  • 6. Evaluate hidden risks finding potential liabilities Prevent unexpected losses Understand financial situations The process of evaluating a business situation from all aspects before making a decision. It is performed to protect both parties, but mainly the purchaser: 1. What is a Due diligence and why is it important
  • 7. Evaluate Value Save Costs Avoid Risks Discover Losses Due Diligence Evaluate Value: To evaluate if the TC business can be a value for the Buyer and can be integrated in the Buyer’s operations Save Costs: To discover if acquisition of TC can generate cost savings opportunities Avoid Risks: To avoid any other risks that Purchaser can have in purchasing TC Discover Losses: To discover what are the possible hidden liabilities and/or losses that the TC could suffer after the acquisition 2. Main goals of a Due Diligence
  • 8. 04 03 02 01 STUDY LOCALS KNWOLEDGE CHECK LIST INTEGRATION Set your goals Study company business, have a clear ideas of your goals. Do not disperse your energies Appoint local experts Use local experts and use them wisely. They know local laws and customs Agree A Clear Scope Draft a detailed questionnaire with each professional adviser at the outset After Closing Plan Be ready in advance with a clear plan on how to manage the Company 3. Tips for Legal Due Diligence
  • 9. Don’t scrimp To save money, you could be tempted to forgo legal due diligence and rely only on warranties and indemnities: don’t do it! Don’t leave your advisers in the dark Make sure the counsels you select talk each other and appoint someone of your Team to coordinate their work Don’t forget the hot topics Do not focus only on assets and business operations, also legal, tax and other areas can cause heavy losses to the TC Do not underestimate cultural differences You must be ready to take control of the TC immediately after acquisition but respect and understand local culture 4. Things to avoid
  • 10. TCL refused to hire M&A experts and did not conduct any DD. After acquisition, TCL: • Realized that Thomson products were old and tired and that Thomson had suffered a $ 100 Million losses the previous year • Did not have to assimilate Thomson’s people and did not have Chinese managers with adequate international experience. In the 2 years after acquisition Thomson accumulated $ 680 Million of losses and the third year TCL closed its European operations 5. Case Study 1 TCL $ 560 Million acquisition of Thomson
  • 11. CITIC Pacific, a subsidiary of the CITIC Group, purchased for 4.2 Billion AUSD the extraction rights in a mining area in Australia. CITIC did not carry an extensive DD and several factors resulted in a substantial increase of costs and investments after Closing. CITIC did not take into account: • Labor issues caused by cultural differences between Chinese and local workers • High labor costs that CITIC could not bypass by using Chinese workforce (visa restrictions on foreign workers) • Costs deriving from mandatory environmental protection • Australian government increased mining taxes by 40% 5. Case Study 2 CITIC Pacific investment in Australian iron ore mines
  • 12. Qianjiang Motors acquired Benelli Motorcycles, an Italian manufacturer of motorcycles from bankruptcy. Only the sales director, the part quality manager, and the managing director were transferred from China to Italy. Several post- merger integration issues including national cultural differences with respect to attitudes, lifestyles, and approaches to business management emerged. The accounting and management information systems of the two companies did not go through post-merger integration either. Acquisition failed and Qianjiang sold business with losses. 5. Case Study 3 Qianjian Motors acquires Benelli Motorcycles
  • 13. Avv. Marco Mazzeschi mm@mazzeschi.it +39 0057926921 www.mazzeschi.it MAZZESCHI S.R.L. The leading immigration service provider in Italy

Editor's Notes

  1. Why buy or invest in a company... without checking its accounts, liabilities and possible losses?
  2. 6
  3. Main goals of a Due Diligence if the TC business can be a value for the Buyer and can be integrated in the Buyer’s operations; if acquisition of TC can generate cost savings opportunities; To discover what are the possible hidden liabilities and/or losses that the TC could suffer after the acquisition; To avoid any other risks that Purchaser can have in purchasing TC
  4. Tips for legal due diligence Set your goals; Make sure you have a clear idea of your objectives. Appoint local experts; Use local experts and use them wisely – They know local laws and customs and can give you some tips Agree a clear due diligence scope; draft a detailed questionnaire with each professional adviser at the outset Prepare an after Closing integration plan (put also in the title After closing integration plan) Be ready in advance with a clear plan on how to manage the TC – Put in place supervision on local managers
  5. 9
  6. Case Studies 1 TCL $ 560 Million acquisition of Thomson 中国TCL集团以5.6亿美元收购法国汤姆逊电器公司 TCL refused to hire M&A experts and did not conduct any DD. After acquisition, TCL: - realized that Thomson products were old and tired and that Thomson had suffered a $ 100 Million losses the previous year - did not have to assimilate Thomson’s people and did not have Chinese managers with adequate international experience. In the 2 years after acquisition Thomson accumulated $ 680 Million of losses and the third year TCL closed its European operations
  7. Case Studies 2 - CITIC Pacific investment in Australian iron ore mines 中信泰富投资澳大利亚铁矿山 In 2007, CITIC Pacific, a subsidiary of the CITIC Group, purchased for 4.2 Billion AUSD the extraction rights in a mining area in Australia. CITIC did not carry an extensive DD and several factors resulted in a substantial increase of costs after and necessary investments after the acquisition. CITIC did not take into account: - labor issues caused by cultural differences between Chinese and local workers - high labor costs that CITIC could not bypass by using Chinese workforce, due to visa restrictions on the use of foreign workers - Costs deriving from Australian government’s environmental protection - Australian government increased mining taxes by 40%
  8. Case Studies 3 Qianjiang Motors acquires Benelli Motorcycles 钱江汽车收购贝内利摩托车 Qianjiang Motors acquired Benelli Motorcycles, a small, family-owned Italian manufacturer of motorcycles from bankruptcy. Only the sales director, the part quality manager, and the managing director were transferred from China to Italy. Several post-merger integration issues including national cultural differences with respect to attitudes, lifestyles, and approaches to business management emerged. The accounting and management information systems of the two companies did not go through post-merger integration either.