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Guanxi & the Importance of China in Tech M&A

In the first of this two-part series, Acuity’s Matthew Byatt examines the importance of China in European technology M&A and discusses some of the common pitfalls…

China – Back on Top

The most advanced application of new technology in the 11th century was to be found in the Chinese city of Kaifeng. What was this ground-breaking technology? A clock tower, engineered by polymath Su Song and standing 13 metres high, containing an astronomical clock that incorporated the earliest known endless power-transmitting chain drive. It was far more advanced than anything else in Europe at the time.

This clock is just one example of China’s early inventiveness – there are many more. The Chinese developed iron-smelting technology a thousand years before the Europeans, as well as pioneering innovations in hydraulic engineering, fertilizers, paper, explosives and pharmaceuticals to name but a few.

For reasons not fully understood, the momentum of China’s technological innovation languished after the 14th century. Today however, China is not only determined to catch up with the West but to re-establish itself at the forefront of innovation. Partly driven by a pressing need to solve its myriad of domestic problems, Chinese businesses are embarking on a new strategic direction whereby they are entering high value, high margin sectors where they are a force to be reckoned with on the international stage…

…this all puts technology M&A at the top of their agenda. 

There is an undeniable trend of Chinese buyers taking more and more interest in European technology businesses. We are increasingly finding ourselves at the negotiating table with smart, sophisticated and aggressive Chinese counterparties who are strategically motivated to acquire quality European businesses as they internationalise. European technology businesses looking to exit shouldn’t just be looking to USA and Japan but must include China.

Guanxi – Building Social Capital Is Key

With the growing interest of Chinese buyers in Europe comes a new set of challenges. Primarily, how do we optimise the outcome for the seller when pitted against an often unknown and misunderstood counterparty? A recent trip to Beijing on business inspired me to reflect on one of the common challenges – cross-culture business relations – which we see as one of the main reasons M&A discussions with a Chinese counterparty derail.

A good starting point for successful M&A in China is an understanding the concept of Guanxi. While there is no direct equivalent in English, the closest we can get to is building trusting relationships within your network.

Whilst in the West we are typically comfortable doing business with a relative stranger, it is almost impossible when your counterparty is Chinese and you’ve yet to establish Guanxi. This is particularly true when considering M&A which tests the resolve of the most motivated seller. A lack of understanding of this point often leaves Westerners frustrated.

Therefore some top tips for building and maintaining Guanxi within an M&A process:


It takes time to build rapport and therefore it is important to invest in the relationship. While a transaction with a US buyer can almost be done over the phone, investing in face-to-face time with a Chinese counterparty is critical. Inviting a Chinese buyer to Europe is essential as is going to China to meet them on their own turf. It can be tempting to rush this process but doing so can rapidly undermine the investment that has already been made in the relationship. Chinese buyers approach M&A at a slower pace compared with other cultures and this needs to be factored in to any exit process.


Europeans tend to operate in a more egalitarian, informal way whereas the Chinese are traditionally hierarchical in their business relationships and customs. A related point is perception: we are often more concerned with how we perceive ourselves whereas in Chinese culture, how others perceive you is more important. Therefore, it is vital to understand the hierarchy and ensure that during any M&A discussions the Chinese counterparty does not lose face in front of a colleague. Not doing this is a sure fire way of eroding Guanxi.

Boundaries (or lack thereof)

Typically business negotiations in the West are compartmentalised; intense, formal boardroom discussions can be parked completely during a relatively informal dinner, to be resumed the next day. In Chinese business, the lines are blurred and while the physical context may change your “suitability” continues to be assessed. It’s vital therefore not to let one’s guard drop and continue to work hard at building rapport (or at least not damaging it!).

At Acuity an in-depth understanding of Guanxi shapes the way we approach the Chinese market and drives the investment we are making in building these relationships in the region.

In his second instalment, Matthew will be discussing the fine art of negotiation in China… published soon.

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It’s our people who make the difference. We began as a partnership between experienced industry enthusiasts with a vision: a personal approach to the challenges of business growth and exit. Acuity Advisors has since grown into a leading name in tech advisory.

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