Local firms use M&A route in German move

A man works at the plant of Shimge Pump Industry Group Co Ltd in Wenling, Zhejiang province. [Photo/China Daily]

More Chinese companies are using mergers and acquisitions of German ventures to grow their markets in Europe, while the German groups for their part are attracted by the prospect of making moves into the booming Chinese market.

As one of the groups seeking to expand its overseas business through the takeover route, Shimge, the Zhejiang-based listed company, bought two foreign pump firms－Wita Wilhelm Taake GmbH in Germany and Hel-Wita Sp. z o.o. in Poland in September for 13.5 million euros ($14.7 million), and is sniffing around for takeover targets in the US.

"It's quite difficult for us to expand business in foreign markets, especially in Europe, where there is a concentration of major and mature industrial leaders. We acquired those local companies for their advanced technology, experienced staff members and existing market," said Zhang Yongqing, the strategic advisor of Shimge Pump Industry Group Co Ltd.

Meanwhile, Goodbaby Group, China's biggest manufacturer and retailer of baby-care products, has already gone down a similar road with its international M& A strategy.

In 2014, the company, based in Suzhou, Jiangsu province, made its first acquisition of Cybex GmbH. The takeover of the German brand of premium car seats meant a wider exposure in Europe and its entry to the high-end car-seat marketplace.

"We are keen to offer high-quality and updated products, with cutting-edge design and technology for consumers, by acquiring advanced and creative brands to speed up the innovation," said Liu Tongyou, the company's vice-president and chief financial officer at the German-China Forum for Investment and M&A 2016 in Kunshan, Jiangsu province.

In the same year Goodbaby Group bought US group Evenflo Co Inc. The large manufacturer of infant consumer products, including car seats and feeding bottles, was acquired for $143 million and represented a move forward in the US mid-class market.

Currently about 70 percent of Goodbaby's business has been switched to international markets including Japan, North America and Europe, while the remaining 30 percent is from China.

Lifted by the central government's strategy, more Chinese companies have stayed with their strategy of investing and purchasing overseas companies. Statistics from the Ministry of Commerce show that Chinese companies completed a total of 521 acquisitions worth $67.4 billion this year in 67 countries and regions covering 18 industries. The amount has already surpassed last year's total of $54.4 billion.

In particular, M&A deals done by Chinese companies in Germany keep surging. A total of 37 acquisitions of German companies were completed in the first half of this year, against the total amount for 2015 of 39. One of the highlights was the Midea's 4.5 billion euro purchase of industrial robot maker Kuka.

"More Chinese companies are willing to purchase small and medium-sized German family businesses for their experience and technology while German companies also need investments to pull them out of the economic slowdown," said Zhang Ning, senior associate of CMS, a global law firm covering services in 34 countries.

However, there are failed examples. Statistics from consultancy PwC show that over 50 percent of overseas acquisitions failed. The report from the Ministry of Commerce also found out that only 13 percent of the overseas projects were making profits.

"It is essential for companies to carry out a detailed examination of the firms into their background, financial condition and tax issues with the support from experienced law firms to avoid purchasing a failing project," said Zhang, who every week meets dozens of Chinese clients wanting to acquire German companies.