In order to guide valuation institutions and their professionals in the overseas M&A valuation, China Appraisal Society (hereinafter referred to as CAS) has formulated the "Valuation Expert Guidance No. 13 - Overseas M&A Valuation" (hereinafter referred to as the Expert Guidance). The relevant matters are explained as follows:

I. Background of the Expert Guidance

Under the promotion of BRI Initiative, in the process of building a new development pattern featuring dual circulation in which domestic and foreign markets reinforce each other, with the domestic market as the mainstay, overseas M&A has become an important way for Chinese enterprises to expand their scale and acquire markets and resources. However, the countries, regions and industries where the subject assets of overseas M&A are located are often complex and diverse, and it has become a challenge to perform valuation of overseas M&A under the requirements of asset appraisal law and valuation standards.

Currently, there is no specific valuation standard for the valuation of overseas M&A. In this context, it is of great practical significance to explore how to properly implement the valuation procedures, reasonably select valuation approaches and relevant valuation parameters, prepare valuation reports and appropriately disclose relevant information, so as to successfully carry out valuation of overseas M&A.

II. Orientation of the Expert Guidance

The Expert Guidance is intended to guide valuation institutions and their professionals to carry out valuation business for reference purpose and is not mandatory.

The Expert Guidance is aligned with the valuation standards system to serve the valuation of overseas M&A. The valuation report is prepared and issued in accordance with the Valuation Practicing Standard - Valuation Report.

III. Preparation Process

After preliminary preparations, in June 2020, the CAS formed a project team to study and formulate Expert Guidance on valuation of overseas M&A. The project team formed a draft proposal in January 2021 after research and discussions. In March 2021, CAS organized a seminar on the draft proposal, and the project team revised and improved the draft proposal according to the expert opinions to form a consultation paper. In April 2021, the CAS issued a notice to solicit opinions from the asset appraisal industry and sent letters to relevant units for opinions. In June 2021, the CAS organized the project team to summarize and analyze the collected feedback, and organized experts to further amend and improve the guidance to form a discussed edition. In November 2021, the CAS submitted the discussed edition to the relevant standards committee for review, and further improved the content in accordance with the review comments to form the proposed draft. In December 2021, the Expert Guidance was officially released.

IV. Main Contents

The Expert Guidance contains five chapters, including Introduction, Basic Compliance, Operational Requirements, Valuation Approaches, Valuation Report and Disclosure Requirements, with a total of 35 articles.

Firstly, on the basis of clarifying the purpose of the Expert Guidance, the definition of overseas M&A asset appraisal and the application scope of the Expert Guidance, the regulatory review requirements, professional ethics requirements, professional competence requirements and requirements for the proper performance of verification and validation procedures involved in the overseas M&A asset appraisal are highlighted.

Secondly, from the perspective of the overall process of overseas M & A valuation business, it suggests the important matters that valuation institutions need to pay attention to in various stages and aspects when implementing overseas M & A valuation business.

Thirdly, the applicability of the three appraisal approaches and the focus of assessment and estimation in the overseas M&A valuation from the market approach, income approach and cost approach are clarified.

Fourthly, it summarizes the key points and concerns in the preparation of valuation reports for overseas M&A, as well as the content and restrictions on the use of key disclosures in valuation reports.

V. Special Matters

1. Verification and validation of overseas M&A valuation.

The Asset Appraisal Law and the Valuation Standards stipulate that valuation professionals shall verify and validate the authenticity, completeness and legality of relevant documents, certificates and information used in valuation activities. Most of the documents, certificates, information and data used in overseas M&A valuation practice are usually obtained through the cooperation of multiple intermediary teams or experts. In order to enhance operability, the Expert Guidance gives recommendations on the cooperation work of intermediary teams, the use of experts' work and related reports, and other ways of working involved in the implementation of overseas M&A valuation.

2. The treatment of restricted valuation procedures of overseas M&A.

The problem of restricted procedures in overseas M&A valuation practice is very prominent and significantly different from that of domestic M&A valuation. On the one hand, the professionals are not familiar with the overseas environment, and on the other hand, the on-site verification cooperation of the subject assets of overseas M&A is limited, and it is difficult to effectively control the cost of valuation procedures, resulting in the limited implementation of some valuation procedures and difficulties in obtaining sufficient valuation information. Based on the experience of overseas valuation practice, the Expert Guidance suggests taking appropriate remedial measures, performing reasonable alternative procedures, improving the specific disclosure content of valuation reports, objectively revealing problems and preventing possible practice risks arising therefrom.

3. Application of valuation approaches of overseas M&A.

The Expert Guidance highlights the key points and difficulties involved in the use of the three basic valuation approaches, distinguishing the use of valuation approaches for domestic M&A valuation to enhance the relevance and operability of the Expert Guidance.