Taking a Chinese Company Private: Effective Due Diligence is Key

Date: Jan 2012

The poor performance of Chinese stocks listed in the U.S and Singapore as a result of recent fraud scandals has triggered a number of Chinese companies to go private. Are private equity firms and investment banking advisors now taking a more cautious approach to due diligence?

Read Kroll’s perspective on the current trends for public-to-private deals and what investors need to know when conducting due diligence.

Going Private? Tips on planning your due diligence strategy

Designing the scope of due diligence is more art than science. Self-disclosed audited financial statements with the listing authorities in addition to allegations made in the press serve as good starting points and lay the foundation of your due diligence strategy. Some of the areas worth considering include:

  • Data analytics using ratio and trend analysis to identify suspicious transactions or relationships
  • Review significant transactions
    • Looking into a related party transactions
    • Conduct background due diligence to reveal disclosed conflicts of interest
  • Review cash flow and fund raising activities

The investor should verify any identified red flags or allegations with the management of the listed company. Management might hesitate to disclose information about their operations on the basis that such information is deemed to be commercially sensitive. Forensic accountants and investigators can assist to verify or dispel allegations – whilst ensuring that appropriate steps are taken to properly handle commercially sensitive information. Read more about effective due diligence.

For more information, please contact us on fraudasia@kroll.com or call +852 2884 7788.

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