Notwithstanding reports earlier this year of transactions that either failed to close (GO Scale / Lumileds; Tsinghua Unisplendour / Western Digital), lost out to competing U.S. bids (China Resources / Fairchild) or were abandoned following frenetic bidding, the pace of Chinese M&A in 2016 remains remarkably strong. As of May 10, 2016, Chinese acquirors had made $110.8 billion in offers for overseas targets, up from $106.8 billion in all of 2015, according to Dealogic. Billion dollar deals drive the trend, with 17 Chinese acquirors spending $83.4 billion in aggregate, compared to six deals worth $16.5 billion during the same period in 2015.

The reality behind the headlines is that a U.S. target board that receives a bid from a Chinese buyer can face a fundamental dilemma: whether to accept a higher-valued offer from the Chinese side that may also carry greater risks to deal completion than bids presented by U.S. buyers. As a result, target directors must weigh the attractiveness of the Chinese buyer’s higher (often cash) price against the potential risk that the deal, if accepted, may ultimately not close, and negotiate effective terms to cause or encourage the Chinese buyer to close and/or compensate the target for a failure to close.

Originally published in Directors & Boards on July 25, 2016.