Recently there has been an uptick in China targeted mergers and acquisitions using the formerly and again popular reverse-merger concept through special purpose acquisition companies (SPACs). For purposes of this discussion, “China targeted” includes businesses that may be located in China or based in the United States which cater to the domestic China community. In this article, we will examine some of the legal and regulatory issues, the structural characteristics of these transactions, and the relevant factors driving this recent trend.
Background of Market for China Targeted SPACs
The use of a SPAC vehicle to complete mergers and acquisitions with China targeted companies is not new. This activity reached a high point in May 2008, when the SPAC entity Nuverra Environmental Solutions completed its $400 million public offering. Later that year, Nuverra acquired a Chinese company engaged in the bottled water business in China, China Water and Drinks, in a reverse acquisition. Soon after the closing of this transaction, M&A activity in the United States for China targeted companies decreased significantly due to several factors, including the discovery by the U.S. Securities and Exchange Commission of fraudulent activities centered on the accounting standards of Chinese companies in reverse mergers in 2008 and 2009, and the global economic crisis during and following those years.
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