'Ambitious' China firms on hunt for overseas M&A
Mainland retains its appetite for takeovers to tap new markets and to access technology, especially in Europe, says a sector-leading banker
Outbound mergers and acquisitions (M&A) will remain active next year as "ambitious" mainland firms continue to seek growth by tapping foreign markets and acquiring new technologies, according to a senior executive with Bank of America Merrill Lynch.
Opportunities were emerging for mainland companies to expand as the European debt crisis has hit growth and lowered valuations at potential targets, said Zhang Xiuping, managing director and head of Asia mergers and acquisitions with the United States-based investment bank.
"Most state-owned enterprises (SOEs) have dedicated teams that actively screen investment opportunities overseas," Zhang said. "China SOEs are growing much more sophisticated in doing international deals and we are often impressed with their knowledge on sector and target."
The zeal was unprecedented, according to Zhang, who has 15 years' experience of investment banking, the first five of which were spent advising on asset sales by US companies, followed by five years of facilitating US investment into China, and the past five helping cash-rich mainland firms with M&As.
She has worked with more than 20 large SOEs on outbound investments since 2006 and closed a dozen deals, including landmark transactions such as State Grid's US$942 million acquisition of Brazilian transmission assets from ACS in Spain this year; and Sinopec's US$4.5 billion acquisition in 2010 of ConocoPhillips' 9 per cent stake in Syncrude, the largest oil sands project in the world.
SOEs in the mainland would continue to seek energy and resources, including oil, gas, iron ore, and copper, to increase capacity, while M&A activity also would take place in the machinery and consumer products sector by SOEs and private companies, she said.
Mainland energy and resource companies faced limited consolidation opportunities in the domestic market as various interest groups including local governments were involved, so they have had to seek growth overseas, the banker said.
For machinery companies, the debt crisis makes it possible to acquire technologies owned by European peers, which is why Sany Heavy Industry, the mainland's biggest machinery maker, acquired German concrete pump supplier Putzmeister this year. Bank of America Merrill Lynch was the financial adviser to the deal.
The consumer-product sector also expects some M&As.
"Wenzhou entrepreneurs are looking into European fashion brands. It is possible some M&A will take place, but I don't expect it will involve significant dollar amounts," Zhang said.
Competitors in the M&A bidding market would include mainly Indian, South Korean and Japanese companies, she said, with the strongest rivals expected to be Japanese companies which could borrow from their banks at low interest rates and were more experienced in bidding.
These days mainland SOEs were staffed with smart executives with international vision, but the five-year tenure of top executives sometimes made them short-sighted and caring only about short-term profits brought in by M&A deals, according to Zhang.
Last year, mainland companies signed 207 overseas M&A deals, up 10 per cent from 2010, according to PricewaterhouseCoopers. Deal value rose 12 per cent year on year to US$42.9 billion.