TAKEOVER DRIVEN

Explaining China’s Buying Binge

WMF_Filtered PR
The WMF chain could be another Chinese aquisition.
  • Why it matters

    Why it matters

    For the most part there are no constraints on China’s buying spree. The same is not true for foreign purchasers in China, who face bureaucratic and political obstacles.

  • Facts

    Facts

    • In 2015, about €20 billion flowed into Europe for participations or complete takeovers.
    • In January, state-owned Chemchina acquired the Munich-based KraussMaffei Group, which makes plastic and rubber processing machinery, for about $1 billion.
    • China wants to make the leap to goods and services of higher value — because only in this way can Chinese companies pay increasing wages of their labor forces.
  • Audio

    Audio

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The long list of European firms being taken over by Chinese investors is growing all the time — Volvo, Putzmeister, KraussMaffei and now maybe the kitchen-equipment specialist WMF. Companies from China are on a shopping spree of well-known European brands, and traditional German firms are especially popular.

Financial considerations scarcely play a role, as demonstrated by €43 billion recently offered by the state-owned conglomerate Chemchina for Swiss agrochemical giant Syngenta.

China is flush with money. After years of a flourishing economy, buyers are sitting on heaps of cash and, if necessary, the government in Beijing is always willing to add to the war chest.

In 2015, about €20 billion flowed into Europe for participations or complete takeovers. The buying frenzy will likely continue in 2016.

In 2015, about €20 billion flowed into Europe for participations or complete takeovers. The buying frenzy will likely continue in 2016.

Is it a reason to worry? No, because many of the acquired firms benefit: They either lacked a strong partner for expansion, were financially weakened or the company’s head simply couldn’t find a successor.

As an up-and-coming developing economy, Chinese investors are pursuing three strategic goals — strong brands, acquiring know-how and opening new markets.

 Strong brands: Far East investors believe in the power of traditional brands. Take German-based WMF, the producer of high-quality kitchen equipment, for example. The brand’s pots and silverware are much sought-after in China — just visit a WMF store in any German city and watch how many packages Chinese customers carry out.

If the bid by the Chinese conglomerate Haier is accepted, it could open up its home market even further for WMF products. In its hunger for expansion, the Haier group is ready to pay huge sums. Recently it handed over $5.4 billion for GE’s household equipment division. For WMF too, the Chinese company will have to dig deep; its bid will most likely be accepted.

 

China s Shopping Spree in Germany-01 March 16

 

Transfer of know-how: In January, Chemchina acquired the Munich-based KraussMaffei Group, which makes plastic and rubber processing machinery, for about $1 billion. Beijing Enterprises wants to buy German waste-management company EEW for nearly twice that. And in 2012, Sany Heavy Industry took over Putzmeister, the German company that is a global market leader in high-tech concrete pumps. In each case, it’s a matter of acquiring technology.

China no longer wants to be just the workbench of the world. Instead it wants to make the leap to goods and services of higher value — because only in this way can Chinese companies pay the increasing wages of their labor forces.

But that won’t be possible without Western know-how – at least not in the short timeframe envisioned by the Beijing government. So the focus is on investment in strategically important industrial areas: production of machines and aircraft, robotics, infrastructure, railways and automobiles. These are industries that can boost the country’s own development and provide products to be sold on the global market.

Also, investors have learned a fundamental lesson: While acquired firms used to be cannibalized, today their purchasers most often allow them to continue working peacefully.

Volvo is the best example. After years of difficulty, the Swedish-Chinese automaker sold more than a half-million vehicles for the first time in its history. Li Shufu, main owner of the automaker Geely, purchased Volvo in 2010 and exercises influence only through the supervisory board.

 New markets: China’s companies know in the meantime that they can no longer export their products exclusively from the home country, if they want to avoid provoking more political opposition in Europe or the United States. So they seek through acquisitions to gain a footing in the most important markets and thereby become global players.

China’s acquisition policy isn’t a problem – not yet. But if expansion continues at this speed, Western companies will more loudly demand a level playing field. There are imbalances to be corrected. While for the most part there are no constraints on China’s buying spree, the same is not true for foreign purchasers in China. They face a host of bureaucratic obstacles, and politics always have the final say.

Thus it is in the interest of Chinese companies to see that their government removes these restraints — so Europeans and Americans don’t put an abrupt end to the supposed sell-off of their industries.

 

 

 To contact the author: wocher@handelsblatt.com

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