As the United States and Europe are in stricter censorship, can Chinese capital no longer carry out overseas mergers and acquisitions of high-end manufacturing? Not so. "Under trade protectionism and technical barriers, there are still some overseas investment opportunities in high-end manufacturing." said Lawyer Xue Feng, chief representative and managing partner of the Shanghai Representative Office of Kaiteng Law Firm in the United States.
According to the data, according to the Morning Whistle Merger and Acquisition Statistics, a total of 77 Chinese-funded overseas mergers and acquisitions occurred in the manufacturing industry in 2018 (excluding mergers and acquisitions rumors, mergers and acquisition intentions and mergers and acquisitions terminations), of which 50 disclosed the amount, involving US$12.342 billion. There are 12 target companies in Germany, involving US$408 million, accounting for 15.6% of the transactions; there are 13 target companies in the United States, involving US$574 million, accounting for 16.9%.
The domestic industrial foundation is relatively weak, and there is still a considerable gap between high-end manufacturing and developed countries in Europe and the United States. Therefore, domestic manufacturing needs technological reference to transform and upgrade the manufacturing industry, which is the native driving force for Chinese capital to go overseas for high-end manufacturing mergers and acquisitions.
In the high-manufacturing industry, automobiles occupy an important position, while new energy vehicles occupy the main battlefield for future investment in high-end manufacturing.
The high-end road of new energy vehicles
Data shows that the top 10 Fortune 10 have been listed for many years, and among the top 100 Fortune 10, energy, automobile and technology companies account for as much as 40%. Zhang Junyi, a capital management partner of
, NIO , said that the changes in new energy smart cars and related industrial chains will trigger global wealth redistribution, and will surely lead industry changes, and a large number of investment opportunities will emerge.
Mobile Internet and driverless technology will change people's car use experience and industrial ecological structure. Specifically, the development of intelligent connected car will usher in major turning points, which come from constant conflicts in business. For example, the development of intelligent connected vehicles depends on the connectivity and broadband upgrade of mobile communication technology, the maturity of short-range communication technology, positioning and navigation technology, data collection, analysis and application technology, etc. However, with these technologies, there are issues such as network communication security, technical reliability, and data security.
Intelligent connected vehicles have redefined the boundaries of the industry and enriched the scale of the industrial ecosystem, bringing new value chain opportunities. The entire automobile industry has been upgraded from a closed ecosystem in the era of the traditional automobile industry to an open ecosystem in the era of the intelligent automobile industry. In the new value chain, the evolving industrial ecosystem will bring new players, new cooperation opportunities, and new industry rules. Technology giants such as Google and Apple have become important players in the smart car industry, while automobile companies have become software developers, and telecom operators have transformed into mobile data transmission service providers in the automotive industry.
However, when the automotive industry is increasingly combined with new energy technology, communications and big data, investment in foreign capital will become increasingly difficult, especially when Chinese capital enters overseas.
The United States is at the forefront of restricting Chinese investment, followed by Germany.
CFIUS and FIRRMA
On November 10, 2018, the "Trial Plan" for 27 industries by the Council on Foreign Investment (CFIUS) came into effect. This plan was in the Foreign Investment Risk Review Modernization Act (FIRRMA Act) passed on August 1 of the same year. The FIRRMA Act aims to change the operation of CFIUS and expand the scope of review. The 27 industries in the "trial plan" of
refer to the targets of foreign investment. Once the production, design, testing, manufacturing or development of key technologies related to these 27 industries are involved, even if foreign capital does not obtain control of the target, it must declare to CFIUS.
In addition, on November 19 of the same year, the US Department of Commerce's Industrial Security Agency (BIS) announced the list of export controls for 14 categories of emerging and basic technologies to be formulated, and solicited opinions from the public on the export control of these technologies.Once these 14 types of emerging and basic technologies are included in the export control list, they will be recognized as key technologies. Then foreign investors need to undergo CFIUS review when investing in targets related to these technologies, which means that the scope of key technologies has been expanded.
A month later, on December 19, the German cabinet meeting passed the draft amendment to the Foreign Trade and Payments Ordinance, which pointed out that "non-EU enterprises invest in Germany, the review threshold for security-related industries has dropped from the current 25% to 10%, especially in areas related to critical infrastructure and civil security and defense-related areas, and also cover the media industry." Previously, German regulatory authorities stopped several Chinese acquisitions of German companies. How to legally circumvent CFIUS reviews
?
Under the heavy supervision, how should Chinese capital invest and mergers and acquisitions in overseas manufacturing be carried out? Lawyer Xue Feng gave a solution.
Take investing in the United States as an example.
Before the enterprise applies for CFIUS review, it should actively design and implement the mitigation plan; during the CFIUS review and investigation, the enterprise negotiates with the government, passively accepts the mitigation plan, and signs a mitigation agreement in exchange for CFIUS approval; the implementation and continuous implementation of the mitigation agreement: reporting, government supervision and regular audits by third parties; if the enterprise violates the mitigation agreement, CFIUS can re-examine it.
Common mitigation arrangements include: asset divestiture, control restrictions, contact restrictions, technology sharing restrictions; restrictions on the governance rights of foreign investors (such as joining the board of directors, etc.); restrictions on the right of foreign investors to enter and exit the facilities of American companies or to query their information; requiring American companies to adopt security plans; assume the obligations of continuous compliance monitoring and reporting to the U.S. government.
In addition, enterprises should make full use of the exception clauses of CFIUS review to avoid complex reviews. The core point of CFIUS review is whether the transactions that need to be declared pose a threat to US national security or have a potential threat. Not all transactions require CFIUS review. CFIUS and FIRRMA also stipulate many exception clauses, such as air carrier investment, general residential housing investment, etc.
If the parties to the transaction determine that there are any potential security issues, the parties should consider the possibility of mitigation measures and the impact of these measures on the entire project and business purpose before filing with CFIUS: to ensure that only specific persons have access to certain sensitive information; to establish company review committees and other relevant mechanisms to ensure compliance with the requirements set forth in mitigation measures; to establish guidelines for handling existing or future contracts and information related to the U.S. government; to ensure that only U.S. citizens can handle specific products or services; to divest specific sensitive assets involving national security from the transaction, etc.
In addition to general transaction avoidance measures, lawyer Xue Feng also gave some special investment methods to circumvent review, such as Greenland Investment, which is currently exempt from national security review in the United States. But you should also pay attention to what the purpose of companies going to the United States is. Some companies are buying technology, but some are buying markets. For example, Fuyao Glass builds factories in the United States. This situation is not restricted by the United States, but the construction of factories should not be too close to military facilities. Due to the US anti-dumping policy, Chinese tires cannot be sold in the US, but if a company directly builds factories in the US, workers and technology can be localized, and tires can be sold in the US market. Some companies directly acquire the technology or talents of American companies after building factories in the United States. This situation is not subject to US review restrictions, but these technologies cannot be licensed or used in Chinese parent companies, otherwise national security review will be triggered.
also inherits this method, which can legally circumvent US censorship. For example, a Chinese company acquired a U.S. company before the United States tightened its national security review, which was approved at the time, but it is impossible to follow the current review. At this time, if a company acquires the domestic parent companies of these American companies, that is, they acquire these American companies in disguise, the current US regulation has not yet involved this situation, so it is feasible for domestic companies to acquire American technology in this way.
State senators help Chinese capital acquire American companies?
has given suggestions on overseas mergers and acquisitions in high-end manufacturing industries.
Companies with experience in overseas acquisitions said that due to the investment restrictions in the United States, most Chinese capitals now tend to go to Europe to invest, but they also face another problem in Europe, that is, cultural differences. Many European countries do not have clear legal terms or policies for foreign investment review, and the scope of artificial operation is large, which has caused many opaque situations. Often, Chinese capitals in the past were rejected without knowing the reason for their investment.
In addition, for the United States review, some companies have proposed to seek help from state senators based on practical experience. Since the United States is the United States, there is no superior-level relationship between the federal government and the states. On the one hand, CFIUS is organized and operated by the federal government, and there is inconsistent interests between the federal government and the states. On the other hand, the senators in the Senate are elected by the states, representing the interests of the states. Therefore, companies can lobby based on the subject's significant interests to the local state, so that state senators can stand on the corporate side, so that CFIUS will have some concerns when reviewing the transaction and promote the conclusion of the transaction.
The most important step in overseas mergers and acquisitions
Many people believe that a company goes overseas to acquire and buys it successfully. In fact, it is not the case. "The signing of a merger and acquisition agreement is only an indispensable prelude, and post-mover integration is the real main theme, because it is the key to determining the success or failure of a merger and acquisition." Yu Ning, a managing partner of NIO Capital, emphasized the importance of post-mover integration. Various studies have shown that 75-85% of mergers and acquisitions have not achieved the expected shareholder returns, and the important reason for this is that the later integration management is inadequate.
In the integration management after merger and acquisition, the most important thing is integration strategy, corporate culture integration and human resources integration. The post-multiple integration strategy can be divided into four types: retention, symbiotic, controlling, and absorption. According to actual conditions, at different development stages, appropriate integration strategies should be selected for different mergers and acquisition targets. The integration of corporate culture plays a key role in the success of mergers and acquisitions. Many mergers and acquisitions projects fail largely because they fail to handle the cultural differences between the two companies well. Effective human resource integration management does not necessarily ensure that corporate mergers and acquisitions can succeed, but ineffective human resource integration management will inevitably lead to the failure of mergers and acquisitions. Human resource integration focuses on retaining key talents, adjusting personnel structures and evaluating, and strengthening communication.
In terms of corporate culture integration, Yu Ning cited an example of Geely's acquisition of Volvo . After Geely acquired Volvo, since the headquarters often had colleagues from Swedish Swedish on business trips, the headquarters added a Nordic restaurant in the canteen, which reflected the cultural concern for employees in different regions in detail.
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