Mergers & Acquisitions

Buying up foreign assets is one thing, integrating them another

China has overtaken the US in foreign mergers and acquisitions for the first time, but for the buyers the real work starts now

PUBLISHED : Tuesday, 18 October, 2016, 4:09am
UPDATED : Tuesday, 18 October, 2016, 4:09am

Start the drum roll, pop the champagne cork. China has overtaken the United States in foreign mergers and acquisitions for the first time, taking their total value to US$173.9 billion in the first nine months of this year, a jump of 68 per cent from 2015. For years, America has been the big spender in foreign buying. China is catching up. But after the frantic global M&A activities from last year, the slowdown, which is almost across the board this year, is to be expected. Foreign purchases are down year on year by 27 per cent in the US, 18 per cent in Europe and 27 per cent in Asia-Pacific in the first half of this year.

So, in a slower year, China has emerged as No 1. Nevertheless, this trend is likely to continue for China.

State-owned firms are expanding their global reach, with particular interest in strategic sectors such as energy, agriculture and resources. But the private sector is catching up as the home market is becoming saturated and too competitive.

China overtakes US as world’s largest assets acquirer

As the Chinese middle class expands, foreign buying is no longer confined to what the state dictates, but what ordinary Chinese consumers want, most notably Hollywood entertainment. Hence the twin purchases of US film companies Carmike Cinemas for US$1.1 billion and Legendary Entertainment, the company that produced such mega hits as The Dark Knight and Jurassic World, for US$3.5 billion by Dalian Wanda, the mainland conglomerate.

Meanwhile, as Europe continues to struggle, assets in many places are being targeted. ChemChina, the chemicals group, is attempting the country’s largest buyout of a foreign company with a US$43.8 billion, all-cash offer for the Swiss agri-giant Syngeta. China’s Midea has taken over Kuka, a jewel of Germany’s robotic engineering sector. But this has raised serious concerns in Berlin and elsewhere.

German Chancellor Angela Merkel did not mince words when she said if China wanted to enter other countries’ key industries, it would have to open up its own. Well, if China’s ventures overseas add to pressure for it to further liberalise its economy, it is surely a good thing.

The successful purchase of a foreign asset is only the beginning. Differences in corporate culture mean hard work and precious time need to be put in to digest a prized acquisition. Upgrading corporate governance and management will be a huge positive for China. But no one should think all these will be smooth sailing.