In the first half of this year, Chinese companies' overseas mergers and acquisitions showed a trend of increasing volume and falling prices. According to a report recently released by PwC (PwC), in the first half of 2019, the overall transaction amount of Chinese companies' mergers and acquisitions activities fell to US$264.4 billion, a decrease of 18%, of which the amount of overseas mergers and acquisitions decreased by 48% year-on-year to US$26.8 billion. However, it is worth noting that the number of overseas mergers and acquisitions transactions increased by 37% during the same period to 426.
Yao Yuankai, head of the China Department and general manager of Shanghai subsidiary of Germany FALK (Fugao) Audit Taxation Firm, said in an interview with the First Financial reporter that German companies have always been one of the main targets of Chinese overseas mergers and acquisitions. Although the total transaction volume of overseas mergers and acquisitions has been decreasing in the past two years, Chinese investors' enthusiasm for German corporate mergers and acquisitions has not faded, but has gradually moved towards professionalization and rationalization. "This is a benign change."
It is worth mentioning that in recent years, Chinese companies' mergers and acquisitions investment activities along the "Belt and Road" initiative have increased significantly. According to data provided by cross-border mergers and acquisitions service provider Chenshou Group to the First Financial reporter, in 2018, a total of 157 overseas mergers and acquisitions initiated by Chinese capital along the "Belt and Road", an increase of 11.35% year-on-year, of which the transaction amount of 103 was US$47.315 billion.
Global overseas investment generally declines
From the data, the decrease in overseas investment is the overall trend of countries around the world in recent years.
Research report by Mergermarket, a consulting firm focusing on the M&A industry, showed that the total value of M&A transactions reached worldwide in the first quarter of 2019 was US$801.5 billion, a 15% decrease from the same period in 2018. Meanwhile, the number of registered transactions worldwide has dropped from more than 5,000 to 3,558. The company's research also showed that the global cross-border mergers and acquisitions dropped significantly in 2019, and currently accounts for only 30% of global mergers and acquisitions transactions, while the average proportion was about 40% between 2015 and 2018.
East China Overseas Investment Report released by Ernst & Young in August also showed that the amount of overseas mergers and acquisitions of Chinese companies has dropped significantly. However, Ernst & Young's report stated that as industrial upgrading continues to deepen, Chinese companies' layout in the high-end fields of the global value chain continues to make efforts. In the first half of 2019, Chinese companies' overseas mergers and acquisitions mainly flowed into emerging industries with high technology content and high value-added value, high-end service industries and consumer goods industries.
Yao Yuankai told the First Financial reporter that in the above fields, some overseas target companies have irreplaceable competitive advantages. Chinese companies' overseas mergers and acquisitions to enhance their position in the global industrial chain is a need for corporate transformation, upgrading and international development. This also shows that Chinese companies have become more rational and professional in foreign investment, and their risk awareness has also been enhanced.
In the " World Investment Report " released in June this year, the United Nations Conference on Trade and Development pointed out that in 2018, the global foreign direct investment (FDI) fell 13% year-on-year to US$1.3 trillion, a decline of the third consecutive year. Among them, the FDI decline in Europe was particularly serious, down half last year to US$172 billion. The report said that for many years, American companies have been the largest overseas investors, but ranked only 157th in 2018, which is the direct result of US President Trump 's attempt to keep American companies at home instead of investing abroad.
The above report also stated that global investment protectionism and investment safety regulatory measures have increased significantly, reaching the highest level since 2003.
Germany's strengthening foreign investment review is more of a defensive strategy?
In addition to being affected by the general background of the decline in global economic growth, some overseas mergers and acquisitions of Chinese capital have also been affected by the gradual increase in the threshold for mergers and acquisitions reviews in EU countries.
From July to August last year, the German government suspended two large-scale Sino-German mergers and acquisitions. In January 2019, the amendment to the Foreign Trade and Payment Act, known as the most severe foreign investment review bill in Germany's history, officially came into effect. According to the provisions of the bill, the review red line for non-EU investors to acquire German companies will be lowered from 25% of their shares to 10% in the field of infrastructure and core technology involving national security.Xu Weidong, founder of
BCCI Consulting and former independent director of Germany ZF Group, said in an interview with the First Financial reporter that at present, the actual impact of the bill is lower than expected. For most companies without sensitive fields such as military industry, it only increases the time required for mergers and acquisitions to a certain extent.
Yao Yuankai believes that the German government raises the review threshold, and there are factors from the United States; at the same time, Germany is also worried that if too many core technologies are sold to powerful industrial countries outside the EU, it may weaken its own and even the EU's voice in the medium and long term.
However, as of now, Germany's foreign investment review policy is more of a defensive preparatory strategy rather than a systematic intervention.
Find out the reason, Yao Yuankai said that on the one hand, for historical reasons, the Basic Law of Germany does not encourage the government to interfere too much in the economy, so there is a political cost in the review; on the other hand, the pace between the various parties in Germany is not uniform, and mutual restraint also increases the difficulty of legislation.
Yao Yuankai said that Germany's current review is mainly aimed at the technology fields involving national security, and its impact on other fields is limited, but the merger and acquisition process inevitably slowed down. For the acquirer, it is necessary to prepare for the process that may be extended by 4 to 6 months.
Experts: Chinese capital needs to strengthen rational and professional cooperation when going overseas
Experts believe that Chinese capital has accumulated a lot of successful experience in recent years, but there are still some problems.
Yao Yuankai told the First Financial reporter that, first, Chinese companies often have too high expectations for the internationalization of German companies. For example, a German rural enterprise, although its production technology is superb, may not have rich international trade experience; secondly, in mergers and acquisition negotiations, some Chinese companies may think that the investor naturally has the right to speak, while German companies usually try to maximize their technological advantages and have a firm attitude in negotiations. Chinese companies often lack understanding of this; and in addition, some Chinese companies pay too much attention to prices during the merger and acquisition process, resulting in problems with post-investment integration.
Xu Weidong said that a successful merger and acquisition requires three conditions: in the early stage, it requires correct strategic thinking and clear merger and acquisition intentions; in the medium stage, it requires sufficient due diligence, not only financial and legal affairs, but also business due diligence; in the later stage, it is effective integration.
Yao Yuankai suggested that as a Chinese buyer in cross-border mergers and acquisitions, he must be strong himself and have a pragmatic attitude of accumulating small victories to big victories. Everything should start with preliminary preparations and background investigations. He gave an example, saying that a Chinese company had conducted due diligence on more than a dozen German companies and spent hundreds of thousands of euros over the years. It turned out that they had no good solution to the problems faced by these German companies. Among them, they systematically saw how some of these once excellent German companies have lost their vitality step by step after a hundred years. In this case, avoiding risks without trading is the best solution. Through more rational and professional cooperation, Chinese capital will surely grow stronger when going overseas. (Intern reporter Xi Yue also contributed to this article)
