3 questions to smart minds

Successful cross-border transactions with China

For this 3 questions to Matthias Litschke

PERLITZ Stra­tegy Group
Photo: Matthias Litschke
28. March 2017

The number of Chinese company take­overs in Germany has reached a new high. Inves­tors from China and Hong Kong bought a total of 58 German compa­nies in 2016 between Janu­ary and the end of Octo­ber — 19 more than in 2015 as a whole (source: Ernst & Young). Chinese inves­tors spent a remar­kable 11.6 billion euros on company acqui­si­ti­ons in Germany in 2016, a good 20 times as much as in 2015. The biggest deal was the acqui­si­tion of Augs­­­burg-based indus­trial robot manu­fac­tu­rer Kuka for 4.6 billion euros. Many Chinese inves­tors conti­nue to look around Germany.

For this 3 ques­ti­ons to Asso­ciate Part­ner Manage­ment Consul­ting at PERLITZ Stra­tegy Group in Mann­heim, Germany

1. You can read in the press that Chinese inves­tors are buying Germany dry, is that right? Is this predo­mi­nantly about tech­no­logy acquisition?

Unde­ni­ably, both the number and volume of Chinese M&A tran­sac­tions in Germany and Europe have risen shar­ply in recent years. Certainly, tech­no­logy acqui­si­tion is also often a driving force.

But there are also other moti­va­tions: in our core consul­ting field of the auto­mo­tive indus­try, for exam­ple, a Chinese auto­mo­tive supplier without manu­fac­tu­ring sites and deve­lo­p­ment capa­city in Europe and North America will ulti­m­ately remain a regio­nal player. A Chinese company that wants to supply global OEMs globally must itself have a global foot­print — Euro­peans, Ameri­cans and Japa­nese have shown you this. So comple­ting this foot­print can also be a moti­va­tion behind M&A tran­sac­tions. Chinese compa­nies want to become global compa­nies, as ours have long been.

Further­more, I would like to point out that the moti­va­tion for the tech­no­logy acqui­si­tion does not have to be nega­tive for the work­force of the purcha­sed company: A Chinese inves­tor does not acquire a company in order to with­draw know­ledge and close the company — after all, he would destroy what he has acqui­red here. Tech­no­lo­gi­cal compe­tence consists prima­rily of the know­ledge, expe­ri­ence and rela­ti­onships of employees. In my expe­ri­ence, Chinese inves­tors are aware that they can only work Euro­pean markets successfully with Euro­pean employees.

2. What is the inte­rest of Chinese compa­nies in the auto­mo­tive and mecha­ni­cal engi­nee­ring sectors?

The auto­mo­tive indus­try is simply one of the world’s major indus­tries and thus, with its employ­ment and export poten­tial, the focus of Chinese indus­trial policy.

The Chinese inte­rest in mecha­ni­cal engi­nee­ring and here espe­ci­ally in auto­ma­tion tech­no­logy and Indus­try 4.0 is, I think, logi­cal, because the Chinese busi­ness model is under pres­sure: China has become the work­bench of the world due to a huge army of workers, low wages and low envi­ron­men­tal protec­tion requi­re­ments. This is not sustainable. In China’s rapidly aging society, the labor force is alre­ady shrin­king. Wages are rising — abso­lute low-wage indus­tries have long since migra­ted to poorer count­ries. China must also face up to its envi­ron­men­tal damage — the current state of affairs is not sustainable.

All this makes produc­tion in China less attrac­tive — in Europe and the USA, the first resho­ring trends are alre­ady visi­ble. Thus, from a Chinese perspec­tive, it is plau­si­ble to increase its level of auto­ma­tion in order to remain compe­ti­tive while offe­ring higher-value products. Simply cove­ring growing dome­stic consump­tion in the future will require more auto­ma­tion. Chinese compa­nies are looking for products and tech­no­lo­gies to meet these needs.

3. You have alre­ady reali­zed seve­ral tran­sac­tions with Chinese inves­tors. Recently, you advi­sed the Chinese Zhong­ding Group on the acqui­si­tion of Tris­tone Flow­tech Group for 170 million euros. How did you manage the rela­ti­onship with Chinese companies

How to do it in China: By buil­ding long-term perso­nal rela­ti­onships. As manage­ment consul­tants, we have provi­ded opera­tio­nal advice to the company for over 10 years. Based on this solidly built trust, we were also manda­ted as M&A advi­sors to Zhong­ding when it was deci­ded to become a global company through acqui­si­ti­ons. As a result, we have now estab­lished a dedi­ca­ted China desk for such transactions.

The success of this process and the resul­ting refer­rals opened further doors for us, so that today we have direct access to Chinese compa­nies in a wide range of industries.

About Perlitz Stra­tegy Group

Perlitz Stra­tegy Group (PSG) is a medium-sized manage­ment consul­tancy based in Mann­heim, Germany. The company has been advi­sing compa­nies in the auto­mo­tive indus­try, mecha­ni­cal engi­nee­ring and other sectors for over 20 years. His consul­ting focus is on stra­tegy, turnaround/restructuring, sales and inno­va­tion manage­ment. Within the scope of the consul­ting field “Stra­tegy”, PSG also advi­ses its clients on M&A tran­sac­tions (commer­cial due dili­gence, deal struc­ture, nego­tia­tion, post-merger inte­gra­tion), among other things.

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