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Currently, Chinese enterprises are progressively becoming vital participants among international mergers and acquisitions. Throughout the past five years, a large quantity of cross-border M&A cases have been launched in the hope of seeking new opportunities. Last year, the number of the acquisitions of foreign enterprises by Chinese companies hit a record high, and it is estimated that it will go on to reach a new high. The M&As among the global leading enterprises are gaining the stream.

What is driving this transition? Will the transition become a long-term tendency or disappear quickly? How will Chinese auto enterprises benefit from M&A and lead Chinese in the world auto industry? What will Chinese auto enterprises learn from foreign auto enterprises concerning cultural difference integration after M&A?

In the brainstorming session “The Role of M&A in the Development of the Auto Industry in China and Globally”of GAF, which was held at 11:00 a.m. on June 6th, the participants further discussed this topic at this session.The participants are as follows: Jack Perkowski, who is the Founder and Managing Partner of JFP Holdings, Ltd. and founder of AISMCO Technologies; Stephen Gore, who is the Managing Director and Head of Asia Pacific M&A /Head of Asia Pacific Financial Sponsors Group; Charles Knight, who is the global director of M&A Service and Financial Advisory of Deloitte; and John Rong, who is the Founding Partner of HQR Capital in USA.

 

The Occurrence of Chinese M&A Is Incresing Quickly While the Occurrence of Global M&A Is Decreasing

In the past few years, or in other words, after the breakout of Financial Crisis, Global M&A emerged rapidly and broke many records.

Currently, global M&A is increasing in terms of transaction amount, but the number of transaction is decreasing, which is a new change. “There are many M&A cases more than one billion, 5 billion and even 10 billion dollars, which was rare before,”Stephen Gore claimed.

So far this year, the number of M&A transactions have decreased globally around 20-25%.  However, there is an exception among all the markets: China. According to what Stephen Gore said, Chinese M&A cases are not only increasing, but by a large scale.“Right now, the total transaction size this year has exceeded the whole previous year.”

In the past, M&A mainly involved resource industries such as oil, natural gas and mineral resources due to China’s micro economic policy, which encouraged SOEs to go out and do M&A. Currently, the occurrence and capital flow of M&A is changing, which is a result of the change in the global economy and Chinese micro economic policy. M&A cases related to auto, components, medical treatment, consumption products industry are increasing.

 

Successful M&A Does Not Only Depend on Money

Innovation is the main reason for the increase in M&A. “Many new technologies are created by Apple and Google in some industries. Actually, they were not independently researched and developed. They did M&A instead. The reason why they choose M&A is because they cannot keep pace with the development speed and M&A is more profitable for their company,”Charles Knight talked about his own opinion about innovation.“We do have lots of opportunities to gain a competitive advantage with M&As when the market is quickly adjusting.”

Charles Knight believes that although investment opportunities are enormous in China, they are restricted by investment policy. Chinese M&A cases may succeed as long as they get enough attention from the public.

At the same time, successful M&A does not only depend on the final transaction price, but also on several other factors. “One of the focuses is the follow-up management and operation, which means how to manage the company after M&A.”

The trend of mergers and acquisitions auto industry will continue. Rong Qiang, co-founder of Hong Qiang Capital, mentioned that in the first quarter of this year, 4,666 mergers and acquisitions totaling more than 570 billion dollars in transaction value were completed in the European and United States markets. The number of mergers and acquisitions is on the decline, but the transaction value is rising marginally by three percent. Among these, three industries remain relatively strong despite the overall slowdown. These sectors are information technology, consumer facing products and business-to-business sectors as well as the auto industry.

“There is one common thing between these three sectors. That is that they are all in the process of rapid transformational change, such as the industrial change brought about by new technology, the change of the consumer mode and so on,” states Rong Qiang, giving his own explanation for this change.

Additionally, he thinks that transformation is another important factor driving mergers and acquisitions. Taking the automotive industry as an example, connectivity, autonomous driving, electric vehicles have been pivotal in the transformation in the auto industry. The transformation of the automotive industry, its development, and the further evolution of the global market will continue. Consolidation within the domestic automobile industry will lead to efficient operations now and in the years to come.

For companies who are considering M&A, Chinese companies are likely to be the ideal buyers. But Stephen Gore thinks that Chinese enterprises merging and acquiring internationally is just beginning, and these overseas transactions have a long way to go.

 “There will be few cases such as the one with Geely purchasing Volvo”, Charles Knight expressed, “from my point of view, there are few opportunities for other OEM mergers and acquisitions. This makes it very difficult for the Chinese OEM industry to participate in the mergers and acquisitions scene. This is not to say that it is impossible, but it is less likely.”

Charles Knight directly expressed his concern. “I think China's CEOs are not well prepared to buy other companies”. He pointed out that the present market is mostly a seller's market. This means that most of the enterprises will be auctioned. In fact, ninety percent of enterprises make acquisitions by way of auction. I think Chinese enterprises are not ready to go on sale, which threatens Chinese investors as they fear overpaying and the possibility of unclosed deals.

 

Documentary of GAF2016