December 21, 2010
Chinese Thirst for US Investors Sparks Merger of Two Accounting Firms
By Ariel Tung
NEW YORK - Two United States accounting firms - Marcum LLP and Bernstein & Pinchuk LLP - will merge their China practices from Jan 1 in response to more Chinese companies seeking listing on stock exchanges in the US.
Marcum Bernstein and Pinchuk LLP will have its headquarters in Beijing, with branches in Guangzhou, Hangzhou and Hong Kong. More than 75 locally hired staff members will work in these offices.
Drew Bernstein, co-managing partner of Bernstein & Pinchuk, said the new company is positioned to meet the needs of Chinese firms.
"We saw the absence of middle market firms in China. Through this partnership, we will be able to combine the expertise and infrastructure we have built up over 10 years in China," he said.
The global economic recovery has fueled an increasing number of Chinese companies seeking capital abroad. Last year, 77 Chinese companies were listed abroad, more than doubled 2008's total of 37, while capital raised in overseas markets increased 292 percent year-on-year to $27.14 billion, China e-Business Research Center said.
This year, 34 Chinese companies, including Youku and Dangdang, made their debut on US stock exchanges. The capital raised by the US-listed Chinese companies totaled about $3 billion.
Bernstein said a lack of understanding of the US market, coupled with language and culture barriers, pose challenges for Chinese companies. The companies also have to adhere to higher performance standards than if they were to be listed back home.
"Unlike most US companies, in Chinese companies, decisions are often made alone by the chairman," he said.
"If you don't hire good professionals, it's difficult to get through the process if you don't understand it well."
David Bukzin, partner-in-charge at Marcum's New York office, said the company will double its practice servicing China over the next 18 months, including increasing local staff on the mainland and in Hong Kong. More Putonghua-speaking staff will be hired for its New York, Los Angeles and San Francisco offices.
"This will enable us to better deliver our services to companies that are based in China," said Bukzin, who added that to be publicly listed successfully, a company needs to provide investors with reliable financial statements and information.
"The merger would allow Marcum to be the best alternative to the Big Four accounting firms - PricewaterhouseCoopers, Ernst & Young, Deloitte and KPMG."
Although Chinese IPOs in the US have been among the top performers in 2010, eight of the 15 securities class action lawsuits filed against foreign companies this year involved Chinese companies.
Bernstein, who is chairman of the audit committee of Nasdaq- and AMEX-listed companies, said any investor would be at risk if he or she did not do diligent research before deciding.
"US investors are learning right now that if you want to invest in a company, you need to do your homework. Do your research and make sure these are companies that use good lawyers and have good transparency," he said.
"Chinese companies can be very cautious of costs so much so that they sacrifice on quality. They are starting to learn the value of using quality professionals. The learning process is taking place on both sides."
Nevertheless, Bernstein said China continues to be attractive for US investors because Americans realize China is becoming a prosperous market in the world.
He said China is one of the few places where you can invest in companies that can grow 10 to 30 percent a year.
"There are not many places in the world that offer that, other than India which is more difficult to do business in right now," Bernstein said.
"Right now, the US is driving China's economy. But that's not going to stay that way."
Many Chinese are poor by international standards but are starting to demand more goods and services.
"The problem is, they can't quite afford it yet but it's getting there. It is happening at lightning speed," he said.