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.