Key asset employees in the case of participation by Chinese investors
For every successful post-merger integration, the compatibility or adaptation of corporate cultures is of crucial importance. In addition to specifics of organizational routines, management styles, compensation and communication systems, differences in national culture, different collective values, individual risk propensity or even perceptions of injustice must also be taken into account. Inevitably, therefore, cultural conflicts are pre-programmed during integration, especially in the phase immediately after closing. These conflicts are based on divergent ways of thinking and behaving and can manifest themselves in forms of communication and leadership style, negotiation modes, and conflict management. The awareness of having to rely on the management structures already in place within the company has become increasingly prevalent among Chinese investors.
Although the employees of a target company are regularly referred to as key assets in transactions by Chinese investors, the high value placed on employees is not necessarily reflected in the contractual or post-contractual documentation. Employee shareholdings, which have long been standard market practice in the field of venture capital, for example, and are also being used more and more frequently in strategic acquisitions, are a suitable approach for transactions involving Chinese investors, especially in view of the potential for market growth in relation to the Chinese market. In addition to the positive aspects associated with employee shareholdings, employee shareholding programs promised in advance of a transaction, regardless of their specific form, can serve as an additional selling point in a competitive process to acquire the target company.
As the direct interface between the investor and the target company, management and senior staff are expected to demonstrate a high degree of flexibility and willingness to perform that goes beyond the usual requirements of the respective position in the target company. Both employee share ownership and virtual employee share ownership models are suitable for retaining employees who are important from the perspective of the Chinese investor and who could not be adequately replaced by the Chinese investor in the short term in the target company in the long term without having to rely on ineffective repressive measures.
Particularly in the post-merger integration phase, which is often more complex than expected for Chinese investors on the German market, employee participation can be very valuable for the investor.
About Florian T. Hirschmann
Florian Hirschmann advises financial and strategic clients in all areas of corporate law, in particular in the context of complex national and international PE and M&A transactions, VC and joint ventures. Florian is the contact person at Reed Smith for Chinese transactions. He and his Sino-German team are experienced advisors in all matters related to China, such as Chinese investors doing M&A deals in Germany, German companies planning joint ventures in China or M&A transactions with Chinese companies. JUVE as well as Legal 500 continuously distinguish Florian as a highly recommended lawyer for private equity and M&A as well as one of the market leaders for Chinese deals in Germany.