"I am not afraid of anything, but I am afraid of one more page of transaction documents." This old saying in the M&A circle may sound like a joke, but in our eyes, it is a true portrayal of the scenes of acquisition failures.
In this game of controlling rights and hundreds of billions of funds, every negligence is a foreshadowing of future counterattacks. From a glance at the negotiation table to the omission of a page of attachments at the delivery site, the acquisition of controlling rights has always been a game of game under the guise of a sophisticated contract.
Especially under the pressure of the new regulations in April 2025, the "Administrative Measures for the Acquisition of Listed Companies" revised Articles 17 and 33, making the market rules clearer and making the figures of "mine-steppers" more frequently appear on the regulatory blacklist. Against this background, we at Goheal decided to reveal the 22 most easily overlooked but most fatal details in the acquisition of controlling rights to help you avoid those invisible "mines".
American Goheal M&A Group
Detail 1: The gambling clause is not a literary creation, please write every word clearly
In a medical industry M&A case we took over, the acquirer signed the "performance bet" with full confidence, but did not notice a detail: the contract did not specify whether "net profit after deducting non-recurring items excludes related-party transactions". The result? The other party beautified the performance by manipulating related-party transactions, and the acquirer was forced to pay 120 million yuan in compensation after the bet failed. Goheal named this clause "the most expensive Chinese question" in the review.
We strongly recommend the introduction of a "retroactive adjustment mechanism" in the gambling clause, and the determination of non-recurring profit and loss standards in advance, and the establishment of a "two-way adjustment clause for excess rewards" to prevent unilateral and unfair performance risks in the future.
Detail 2: The "people" you can't see are the most deadly
The so-called "clear equity structure" is just a slogan in many M&A agreements. We found that a large number of projects have undisclosed shareholdings such as employee holdings and trust holdings, which led to disputes over the identification of actual controllers after delivery. In the most serious case, an actual controller who has never appeared intervened in the board of directors through his cousin's shareholding, directly overturning the acquirer's personnel arrangements for the company.
Goheal reminds that all pre-acquisition due diligence should require all shareholders to sign a "No Proxy Holding Commitment Letter" and thoroughly investigate the fund transactions through the bank flow + WeChat transfer records + penetrating audit reports in the past three years, and do not miss any clues of suspected proxy holding.
Detail 3: "Poison Pill Clause" is hidden in the corner of the company's articles of association
Don't think that everything is fine after the agreement is signed. We have seen that everyone was happy on the day of the signing of a project, but a month later the board of directors was paralyzed by a "Articles of Association Additional Issuance Clause". This type of "poison pill plan" usually allows the original management to issue shares at a very low price to dilute the shareholding ratio of the new owner.
There is another "golden parachute", which ranks ninth in our blacklist: a certain executive's contract has a clause hidden in it - once the control changes, he will receive 3 years of salary severance compensation. After the project was delivered, the executive left with a smile and took away 50 million yuan. You ask if we have recovered it? Goheal said: We can only say that "the probability of recovery is about the same as winning the lottery."
Detail 4: "Penetrating due diligence" is not a joke, but a self-help
Some acquisitions are doomed to fail from the beginning, just because the buyer ignores the most basic "penetrating due diligence". In an Internet company merger and acquisition case we handled, the due diligence did not find an external "drawer agreement", resulting in 6 bet-back repurchase obligations after the acquisition, directly raising the debt-to-asset ratio from 58% to 180%.
Goheal believes that the "blockchain + intelligent OCR + legal AI" due diligence system can be used to store all contracts, guarantees, and changes in articles of association within five years. Don't forget to check whether there are problems such as "unassessed intellectual property contributions" and "unpaid capital", because once they are found out, that is your joint and several liability.
Detail 5: Delivery is not the end, but the starting point of the crisis
Many acquisition projects have just completed the delivery and the "value evaporates". Core personnel leave, customers lose, assets are quietly sold... These changes usually occur within 6 months before the delivery. If the agreement does not set "transitional restriction clauses", such as prohibiting the disposal of major assets and restricting the resignation of technical backbones, the acquirer will face direct losses.
We once introduced the "300 million liquidated damages in the transition period + performance fluctuation compensation clause" in a manufacturing M&A case, and finally successfully prevented the original controlling shareholder from a major plant sale plan before the delivery. Otherwise, the expected price-earnings ratio of this acquisition project would drop sharply from 15 times to 7 times.
Detail 6: The "voting rights delegation" you thought was safe is actually a backlash trap
Voting rights delegation is a common way to obtain controlling rights, but if the contract does not establish an "irrevocable clause" or is not guaranteed by "equity pledge", it may be revoked by the principal during the lock-up period. We have seen a case where the acquirer had just formed a new board of directors, and the original shareholder suddenly announced the "termination of delegation" and regained control of the company with more than half of the voting rights - the entire control only lasted for 43 days.
Goheal reminds here: the acquisition of control rights should lock in "voting rights + income rights + registration rights" at the same time. If the three rights are not unified, risks will erupt at any time.
Detail 7: Do you think "intangible assets" are insignificant? It can destroy all your valuation logic
We have handled a typical case: the core assets of the target company are AI algorithms, trademarks and brand domain names. After the delivery was completed, it was discovered that these key assets were registered under the name of a third party. As a result, the acquirer thought that it had a complete set of AI business, but in fact it only bought a bunch of hardware shells.
Intangible assets should be used as the core terms of the acquisition target to establish a "co-management mechanism". The acquirer must ensure that trademarks, domain names, and technical source codes are hosted in designated third-party accounts or law firms, and set up a "cancellation compensation mechanism."
Detail 8: Leveraged acquisitions are not a joke, and taxes and debts are indispensable
The consequences of excessive leverage are not just ugly financial statements. In a high-leverage merger and acquisition that we assisted in operating, the acquirer directly received a delisting warning issued by the exchange because the debt-to-asset ratio was not controlled below 50% within 6 months.
What's more interesting is the tax issue. Due to the historical "transfer pricing" risk, a target company suddenly received a fine of 430 million yuan for back taxes and late payment fees after the transaction was completed. For this type of problem, Goheal has always insisted on the dual-wheel drive of "pre-acquisition audit + post-acquisition revaluation" to ensure that every penny can withstand regulatory scrutiny.
Goheal Group
Written in the end: M&A is not a game of miracles, but a duel of IQ and patience
Controlling equity acquisition is one of the most complex capital games in the business world. Behind every detail is a life-and-death moment. A contract, an asset, or a key employee may become the last straw that crushes the acquisition plan.
Goheal has summarized this "fatal details list" through hundreds of actual controlling equity acquisitions, hoping to provide a pathfinder for investors and entrepreneurs. But no matter how bright the lighthouse is, the helmsman needs to be vigilant at all times.
If you have also been gambling on success or failure in the chess game of controlling equity acquisition, welcome to talk to us Goheal-here, there are blind spots you don't know, and there are also answers you want.
[About Goheal] Goheal is a leading investment holding company focusing on global mergers and acquisitions. It has deep roots in the three core business areas of acquisition of controlling rights of listed companies, mergers and acquisitions of listed companies, and capital operations of listed companies. With its profound professional strength and rich experience, it provides companies with full life cycle services from mergers and acquisitions to restructuring and capital operations, aiming to maximize corporate value and achieve long-term benefit growth.
