China changes tack in asset push

Overseas shopping spree now focuses on consumer and manufacturing firms that offer branding and technological know-how

PUBLISHED : Wednesday, 19 June, 2013, 12:00am
UPDATED : Wednesday, 19 June, 2013, 5:22am

China's focus in overseas acquisitions has shifted to consumer and manufacturing companies that can help boost global brand positioning and technological know-how.

The move reflects an important development as the world's second-biggest economy looks to transform itself into a domestic consumption driven model.

David Wu, the head of corporate finance in China for Netherlands-based ING Bank, said Chinese bidders had been actively looking for European companies that had unique technology, premium brands, as well as a meaningful client base and distribution channels.

Chinese buyers are looking to supply inexpensive raw materials or semi-finished goods to European companies, in return for technology transfers.

Wu, who is based in Hong Kong, said the "majority of the Chinese merger and acquisition deals involve consumer, manufacturing and industrial firms".

Deals in the materials, energy and utilities sectors remained dominant in "big-ticket" transactions.

Chinese companies have spent US$31.5 billion on outbound mergers and acquisitions this year, representing a 65 per cent increase from the same period last year - the second-highest year-to-date level since the US$33.6 billion in 2008, according to data provider Dealogic.

It was reported on Monday that a consortium of companies controlled by Li Ka-shing is buying a Dutch waste management firm for HK$9.7 billion, making the deal Li's second investment in a waste treatment operator this year.

Li has a long-term strategy of buying utilities in Britain, Canada and Australia as they offer regulated operating environments with stable returns.

"European utilities firms have always been in demand for Chinese buyers who can secure returns under a highly regulated environment," said Wu, who also pointed out that the risks of conducting overseas purchases "are never low".

He said the overall outbound deal value this year would be somewhat similar to last year's US$60.4 billion on the back of a stabilising economic conditions in the euro zone.

Shuanghui International's planned US$4.7 billion acquisition of Smithfield Foods, the world's largest pork producer, marks the biggest Chinese takeover of an American firm and underscores the nation's renewed interested in scooping up overseas assets.