In Switzerland, local management often holds the key to post-takeover success

Chinese buyers of companies in Switzerland have begun to win a reputation for being hands-off when it comes to restructuring management

PUBLISHED : Saturday, 30 September, 2017, 10:00am
UPDATED : Saturday, 30 September, 2017, 10:30am

Language and cultural differences appear to be major challenges for Chinese companies grappling with how to manage newly acquired companies in Switzerland, which may well explain why many new owners like to retain existing management.

In fact, Chinese buyers have begun to win a reputation for being hands-off when it comes to

restructuring management following an acquisition, a trait that’s being seen as a plus when mainland investors come calling.

“Chinese buyers showed they can bring in money and give freedom to the existing management,” said Ronald Sauser, managing director and head of merger and acquisitions at EY Switzerland.

Many Swiss family-owned businesses, in cases where the upcoming generations have chosen not to carry on, need to find a buyer.

Sauser said Swiss companies have often sought his help in finding a Chinese buyer to participate in the bidding process, a trend that has picked up in the last few years.

This represents a change from a few years ago when a Chinese company seeking to buy a Swiss company often met resistance.

“Back then, the owners usually opted for selling the business to someone who came from the same village. However, after some transactions involving Chinese companies showed good results, sentiment began to turn more positive,” Sauser told the South China Morning Post in an interview in his office in Zurich.

Because Chinese companies were willing to retain local management, economic benefits continued to accrue to the local Swiss communities in the form of jobs.

“Many Chinese buyers are taking a long-term view to business which is favourable to European and Swiss companies. These acquisitions also help Swiss companies expand into the Chinese market. Of course, they are also willing to pay a high price and this is why Chinese buyers are popular,” Sauser said.

The acquisition of Sweden-based Volvo by Zhejiang Geely Holding, the parent of Geely Automobile Holdings is an example of a successful takeover.

The Chinese parent allowed the existing management to continue to run the business, while supplying capital to develop new models and helping create a gateway to the mainland market.

Geely Automobile Holdings announced in August its first-half profit more than doubled, thanks in part to robust sales in mainland China, the world’s largest car market.

Sauser said transactions like Geely showed the value of European management in fuelling the success of a company post takeover.

Chinese companies spent US$48.55 billion buying Swiss counterparts in 2016, up from US$4 billion in 2015, and US$372 million in 2014, according to Thomson Reuters.

The 2016 acquisition of Syngenta, a manufacturer and wholesaler of agricultural chemical products, by China National Chemical was worth US$44.25 billion.

However, in the first nine months of this year, the value of merger and acquisitions has dropped to US$793 million. Part of the drop can be attributed to efforts by Beijing to tighten capital and scrutinise overseas deals more closely since November last year.

Samson Lo, managing director and head of mergers and acquisitions of Asia of corporate client solutions at UBS Investment Bank, said China’s interest in Switzerland is on the rise.

“Switzerland is well known for its effective corporate governance, travel related industries, strong consumer brands, particularly watches and jewellery,” Lo said.

HNA, in particular, has had a strong focus on Switzerland, having acquired cargo handling company Swissport, in-flight gourmet firm gategroup, and a stake in duty free company Dufry, Lo said.

China issued guidelines in August designed to curb extravagant investment by Chinese conglomerates in overseas real estate, entertainment and football clubs while encouraging themes such as technology.

“China’s sharpened focus on technology plays to Switzerland’s strengths, in particular, to its strong consumer brands and technology sector,” Lo said.

China UCF Group has been among the active mainland companies acquiring Swiss and other European assets in recent years.

Shirley Hsu, chief executive of UCF Capital, the overseas investment arm of the mainland company, says there is an advantage in keeping local management.

“We can provide capital to the Swiss and European companies. But we would like to use and hire local talent to help us to run the business as it has proven to work very well,” she said.

Matthias Courvoisier, partner of Baker McKenzie, believes Chinese companies will continue to be attracted by Swiss companies in areas ranging from technology to manufacturing.

“Chinese buyers are rather reluctant to substantially take over management immediately after the acquisitions due to the language and cultural differences,” Courvoisier said.

He added that language is only one part of understanding the operational culture behind a foreign acquisition.

“Local management know the local culture and regulations,” he said.

Felix Sutter, president of the Swiss-Chinese Chamber of Commerce, said the Chinese and Swiss are both good at manufacturing, appreciate innovation and have a good work ethic. The two, however, also have many differences.

For example, Sutter said Chinese buyers consider a memorandum of understanding as reflecting the beginning of the negotiation process.

In Swiss culture, however, the two parties would negotiate to work out all details before signing the memorandum of understanding. These issues may create some misunderstandings between the two parties, he said.