European family-run businesses ripe for Chinese outward investment, say advisers

Chinese firms seeking to gain technological expertise and greater market share are advised they can achieve those aims by investing in small- and medium-sized family businesses in Europe

PUBLISHED : Friday, 27 June, 2014, 2:16pm
UPDATED : Friday, 27 June, 2014, 2:16pm

European family businesses may increasingly look to Chinese investors to help sustain them as the availability of bank credit in the debt-ridden euro area remains tight and consumers are reluctant to return to free-spending ways.

Advisers are calling for cash-rich China not to miss an unprecedented opportunity to acquire both advanced technology and market share in continental Europe, which could prove far more worthwhile than hunting for bargains on assets such as property with the European economy seeing no clear signs of recovery.

Deal advisers, however, cautioned that while taking over a European business might be relatively easy, due to the mature rules governing the process, Chinese buyers would face a much more serious test afterwards in successfully managing companies that have for decades helped forge the prosperity of the region’s industries.

Legal practice Simmons & Simmons’ partner Eric Lin told the South China Morning Post: “Many family businesses in Europe have struggled to survive because of the global financial crisis and problems in their own operations.”

Many are in the manufacturing sector, such as car parts suppliers that ship goods to motoring giants like BMW and Volkswagen, he said.

Hermann Meller, a partner at Dentons law firm, said interest from China in investing directly in Europe has been growing rapidly with deals in the manufacturing sector advised by his firm accounting for about 80 per cent of its total transaction value last year.

“We see a growing trend of mid-sized German companies, very often family-owned, looking to find succession,” Meller said. “That’s where Chinese investors can come in. They can gain technological advantages and also open new markets.”

“The prices are relatively low and opportunities are big.”
Shaanxi Blower Investment Project Manager Sun Bing

China’s outward direct investment has surged significantly, from US$145 million in 2003 to US$7 billion in 2012. The government has encouraged companies to invest abroad as part of a policy aimed at soothing pressure from its ballooning foreign exchange reserves. The trend has barely been deterred by the still weak euro-zone economy, where purchasing managers’ indices fell to six-month low of 52.8 in June.

A successful deal Dentons closed in March as legal adviser was Zoomlion Heavy Industry Science & Technology’s takeover of M-TEC, a Germany-based, world-leading dry mortar producer, which evolved from a family-owned business.

“There was huge interest from Zoomlion in buying the technology because it exactly fits its strategy for their products in China,” said Meller.

But European family business owners have “mixed feelings” about selling assets to strangers from abroad, he said.

Chinese buyers need to convince them with a clear strategy and show that they “want to build, not destroy” the targeted business, he said.

However, making acquisitions happen is relatively simple in Europe.

“The works start afterwards. Integration is the big thing,” said Meller.

Shaanxi Blower, based in China’s ancient capital Xian, has been in talks with a few purchasing targets in Europe, Investment Project Manager Sun Bing told the Post. “The prices are relatively low and opportunities are big. One or more deals may be inked by the end of this year.”

But Sun said the company is clear-minded about its management capability and would therefore focus on smaller, private companies and some research institutions, he said.