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Consultant on the Coke-Huiyuan deal and global M&A

(chinadaily.com.cn)
Updated: 2008-09-16 17:11

Global M&A is on the rise. Chinese companies are making more acquisitions overseas and multinationals are aggressively targeting Chinese local players.

However, not all these high-profile moves have had a happy ending. EBay quietly retreated from China three years after buying Eachnet in China, and BenQ, the Taiwan-based technology company, admitted failure one year after its acquisition of Siemens' mobile business in Germany.

The most recent news is that Coca-Cola on September 3, 2008, announced a $2.4 billion takeover of Beijing-based China Huiyuan Juice Group, the number one juice maker in the country. The deal, subject to regulatory approval, would be the largest ever for Coke in China and is a clear sign that Coke would like to further expand into the Chinese juice market.

What are the characteristics of the re-energized global M&A market, particularly in China? What should a company do to ensure that its acquisition is successful and that the cultures of the two merged companies are well-integrated?

In an exclusive interview with China Knowledge@Wharton, David O. Kompare, head of the global M&A practice at global consultancy Hewitt Associates and a veteran with 15 years of experience in the M&A business, discussed these issues.

Q: You have worked many years in the global M&A business. Can you comment on recent trends in this area?

A: I have been with Hewitt for 11 years, but I have been working in the M&A market for almost 15 years now. This is a very exciting time. It used to be a US company acquiring a US company, or a German company acquiring a German company.

But over time, what is happening is that companies' strategies (have become) more global, and they now realize that to be successful, they have to be successful globally. This has a number of implications. You have to go global for more cost-effective labor, for new technology, or in order to be competitive. You have to look for resources globally.

The same is true if you want to be successful with customers; you have to be global. Take Hewitt, for example. The companies acquired by many of our clients now have operations in 10 to 15 countries. We are working on the HP-EDS merger now, and I believe EDS has operations in 67 countries. If we (want to) to be able to support our clients, we have to be global.

There are a number of challenges for companies trying to build from the ground up. So acquisitions make a lot of sense in terms of your ability to grow your business globally and to do so quickly.

Not only do global acquisitions give you access to markets; they give you access to new ideas, new ways of doing business. So one of the most exciting (aspects) of the M&A market today is that if you find a company pursuing a global strategy, then acquisitions help to support that.

Q: What do you think is happening with regard to Chinese companies?

A: It's a very dynamic and very interesting time for Chinese companies in the M&A market. It's amazing (to realize) that interest in China (on the part of) our clients is greater now than at any time in our history.

Q: Coca-Cola just announced that it is acquiring the China Huiyuan Juice Group.

A: Yes. Companies interested in China want to leverage labor skills and labor resources.... I think the most interesting thing now is that you start to see Chinese companies going outside China. Based on my discussions here, it is becoming very clear that Chinese companies will continue to expand overseas, and that a number of State-owned companies will continue to run operations globally and look to acquire other companies. That's very interesting and dynamic. That didn't really exist in the past and I think it will be interesting to watch over the next several years how that develops.

How will employees in Brazil or France feel about having their company acquired by a Chinese company? What does that mean to the employees? So far, there has not been much experience in this area. I think one of the biggest challenges for Chinese companies (making) acquisitions is how to help the employees in those companies understand what it means.

Q: What are the main challenges for foreign companies acquiring companies in China?

A: I think there is a big learning curve for them, in terms of understanding how to operate successfully in the Chinese marketplace and how to (handle) the regulatory environment in terms of payroll taxes or safety standards or whatever it maybe. Companies are really only learning now what takes it to be a successful employer in China.

A client tells us that one of the challenges to operating successfully in China is the ability to retain talent. It's a very competitive marketplace.... I think companies are struggling with the question of what can I do to make myself an attractive employer (so that I can) retain good employees, and over the long term, develop good management talent.

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