By Gu Yang

On January 31, Sany Group bought 90 percent of renowned German machinery company Putzmeister for ��324 million (about RMB2.654 billion Yuan). The purchase attracted a lot of attention. On the same day, Guangxi Liugong Group signed a final purchase agreement with Polish company HSW, the former buying the engineering machinery business of the later for RMB335 million Yuan. Prior to that, Weichai Group acquired Italian luxury-yacht builders Ferretti Group for ��374 million, making the first successful overseas acquisition in this year.

Looking more closely, we may find the presence of more Chinese companies in the overseas acquisition market since the beginning of this year: the State Grid bought a 25 percent stake in Portuguese power grid group REN, and Three Gorges Corporation bought 21.35 percent of Energias de Portugal. 

"Behind the strong presence of Chinese companies in the acquisition market lies the strategic consideration of more and more Chinese companies to aim at the international market and seek for development transformation", said Wang Zhile, researcher of Chinese Academy of International Trade and Economic Cooperation of Ministry of Commerce and director of New Century Academy on Transnational Corporation.

Golden opportunity to "go out"

Many foreign assets are being undervalued. This is a rare opportunity for Chinese companies that have ambitions in overseas markets.

According to statistics from MOC, as of the end of 2011, domestic investors in China has direct invested 18,000 enterprises in 178 countries and regions, aggregate non-financial direct foreign investment amounting to US$322 billion.

"Of this amount, US$22.2 billion direct investment was made through mergers and acquisitions in 2011, accounting for 37 percent of China's foreign investment at the same period", said Shen Danyang, spokesperson of MOC. According to statistics from Zero2IPO Research, Chinese enterprises completed 110 overseas mergers and acquisitions last year, a growth of 93 percent year on year.

"The external cause of this situation is the international financial crisis, and the internal cause is the strengthening of Chinese companies", said Kang Rongping, researcher of the World Economy and Politics Research Institute of Chinese Academy of Social Sciences. Mr. Kang also points out that currently the European debt crisis is continuing and the economy of developed countries stagnates; there are more overseas acquisition opportunities for Chinese enterprises.

China's real overseas acquisition started in the beginning of the new millennium. Particularly after China's entry into the WTO, enterprises have accelerated efforts in overseas acquisitions. In 2005, Lenovo's buying IBM's PC business marked the beginning of the first craze of Chinese enterprises' overseas acquisitions. 

In 2008, the burst of the international financial crisis gave rise to Chinese enterprises' desire for international acquisition. Large overseas acquisition by Chinese companies, including Chinalco's buying Rio Tinto, Ping An's buying stake in Ageas, China Development Bank's buying stake in Barclays, and China Investment Corporation's investment in Blackstone, resulted in a transaction volume of US$20.5 billion of overseas acquisition by Chinese enterprises, accounting for more than a half of total foreign investment in the year.

For various reasons, however, few of these international acquisitions and mergers have been successful. According to institutional statistics, the overseas acquisitions by Chinalco, China Investment Corporation, Ping An and other Chinese enterprises back then resulted in losses of up to RMB200 billion Yuan. In March, 2010, privately-run auto company Geely's acquisition of Volvo re-ignited Chinese enterprises' passion to "go out".

"Presently, many overseas assets are being undervalued. It is a rare opportunity for Chinese enterprises that have ambitions in foreign markets", said Wang Zhile

Diversified industries and subjects

Chinese enterprises' overseas acquisition is not confined to resource industries. Wholesaling and Retailing has become a new field for expansion, and privately-run enterprises are getting involved publicly

Different from the past, Chinese enterprises' overseas acquisition is no longer confined to resource industries such as energy and minerals. Wholesaling and retailing, such as consumer goods and industrial products, has become a new field for expansion. Examples include Haier's purchase of Sanyo's white appliances business, Huawei's buying a 49 percent stake in Symantec for US$530 million, and Bright Food Group's purchase of a 75 percent stake in Australian food company Manassen. According to statistics, in 2011, overseas acquisitions in the fields of consumer goods and industrial products accounted for 35 percent of total transaction volume, 13 percentage points higher than the same period of last year.

In the consumption field of overseas acquisition, enterprises attach more importance to the purchase of new technologies, sales channel, and brands, as effective measures for the enterprises to improve competitiveness and advance to a higher level in the value chain.

Ge Junjie, vice president of Bright Food Group, suggests that it is Manassen's rich channel resources that attract Bright Food to make the acquisition. "The gross profit rate of conventional retail trade distribution model is between 5 to 10 percent, but the gross profit rate of Manassen's business model is as high as 28 percent".  

In the machinery manufacturing industry, Sany Group and Zoomlion have acquired stakes in the world's first and third brands, and XCMG is also in the process of acquiring a stake in the world's second brand.

As an emerging force in overseas acquisition, many privately-run enterprises are getting involved publicly. Compared to state-owned enterprises, particularly central enterprises, the scope of attention of privately-run enterprises are more extensive, and their decision-making mechanism more flexible. According to experts, privately-run enterprises will become an important force in overseas acquisition in the future, getting more involved in international division of labor and swimming farther upstream in the industry chain.