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Nov 14, 2011

No Sweetheart Deals in Asia: Play the Due Diligence Card

I just received a phone call from a prospective client with a wonderful product that has been offered a sweetheart deal.  Whenever I hear that someone has received a no risk or sweetheart deal in Asia, a red flag immediately goes up in my head and I immediately request the client to let me do a couple of weeks of due diligence.

The, ubiquitous, sweetheart deal is ownership of shares in company in exchange for some benefit from the foreign partner.  Too often, the Chinese, Korea, Cambodia etc. company is a shell.  The shell is broke with liabilities that far exceed assets.  The shell, however, is paying his management handsomely through a variety of interested transactions and access to the expense account.  In one case I regrettably saw, the company was under investigation of the prosecution.

Thus, you sweetheart deal may lead to unexpected liabilities, the deterioration of your brand image, the eyes of investigative bodies and additional legal fees and lost future opportunities. 

Do yourself a favor, engage a professional to engage in a little due diligence.  I wrote many article about due diligence in Korea and China.  A few are below.