Private Enterprises to Be Dynamic Force of Future Overseas M&A

It means a lot of risks for Chinese enterprises to get involved in overseas merger and acquisitions. A new regulation enacted recently by the Chinese government requires state-owned companies not to purchase overseas business assets unrelated to their major business. Some companies thus felt worried that they would not be allowed to engage into any type of overseas merger and acquisitions. Ms. Shu Ya， IMAP director who is in charge of overseas MA affairs of the Chinese enterprises， commented that such kind of regulations intend not to limit Chinese companies’ overseas MA strategy， but to encourage them to make headway into the global MA market.

But regarding these Chinese companies entering the overseas market， it will be easier for state-owned or private enterprises to make successful acquisitions? Shu said that nowadays the state-owned enterprises still constitute the mainstream of the MA market， but more and more private companies have been involved in the medium-sized market， the value of which ranging from 5000 to 500 million USD. In future the private enterprises will become the most dynamic force. She said: “Many private companies have come to see me， asking me whether to invest in the foreign market or purchase a foreign asset. I think these are good questions， and the final decision shall be in line with the corporate overall strategy. For any Chinese company， its strategy will be the guideline for the development.”

Shu told more details to the reporter: “normally speaking， we will get down to the question about which type of companies is qualified for overseas MA business. In my opinion， the company shall be the leader of its industry. It does not mean it should be the huge state-owned conglomerates like Sinopec or CNPC. Some small companies with 200-300 million output value may also be the leader of a particular field or industry.”

Shu shared one case with us: not long ago a Zhejiang company which produces firefighting equipment purchased a Danish company. It does not rank into top 500 in China， but its products are really excellent， therefore such a company is totally capable of going into the overseas market. Therefore， the size or nature of the company does not determine its ability to do overseas MA projects. It depends on the company’s development strategy， its operation in the domestic market， whether it has such needs as a leader in the domestic market or as an export-oriented company.

She stressed that the company shall have clear development strategy and market plan when engaging into the overseas MA. If all conditions are ready， companies could consider and implement its overseas MA strategy.

Now the companies engaging into overseas MA could be classified into several categories: first， companies needing to acquire advanced technology， such as Huawei and SANY Group， the second would be companies grabbing more resources， like Sinopec and CNPC; the third type includes those companies engaging into production and charitable activities. SANY group and XCMG mainly focus on technology and production capacity. Chinese companies are able to raise its capacity through RD， but this normally takes several years and when the capacity is ready， the market opportunity will be gone. Therefore， MA is a very good approach for companies to grab the market share.

Another focus will be brand and qualification. Those small or medium-sized companies which have led the domestic market could take into account the brand. Mr. Shu said that the products of the firefighting equipment producer(mentioned above) have gained recognition in more than 20 countries in the world. Chinese companies would be very happy to use the OEM model to sell their products in Europe， and their brands and reputation will also rise to higher level. For example， many Chinese companies now produce Italian brand garment and furniture. Mrs. Shu gave another example: “I have recently met some Chinese companies producing LED. They strongly demand for the overseas expansion of their business. A potential customer of mine is aiming to purchase a brand ranking into the world top 50. It will be very slow to promote their self-brand products in the U.S. and European market， while purchasing a local brand will make this much easier. Acquiring a foreign brand and producing at home will be the most common model used by private companies. The brand acquisition is not like purchasing a company worth several billion dollars. Chinese companies could use this tactic to enter the markets of light， shoe， costume or firefighting equipment.

Shu also pointed out that when Chinese companies choose investment bank as its business partner， it should accord with their corporate scale and feature. If companies like Sinopec or CNPC are involved into several billion USD acquisition business， Goldman Sachs will be the excellent choice. If the acquisition is small， then medium-sized investment bank will be enough. It needs some preparation to study the market beforehand and choose those agents with deep knowledge and experiences of the industry. Also， Chinese companies should focus on the place and nature of transactions of the investment bank and which industries have they been involved in. Sometimes it is necessary to choose those professional companies focusing on a specific area or having intellectual property rights and technology in such areas. In some cases， companies may have been put into the transaction list for many times as both buyer and seller. This also indicates the maturity of the market.