What your M&A strategy should look like
January 16, 2014 | BY
clpstaff &clp articles &China Law & Practice attended the Second Advanced China Summit on M&A at the end of last year. Strategy and the climate for M&A were high on the agenda, as well as vital lessons for getting the deal done
Participants at the Summit learned that industrials and chemicals, consumer, technology and energy, mining and utilities were the top active industries in the first three quarters of this year for M&A in China.
“There is definitely an appetite for deals in Asia,” said Nima Masroori, general counsel for Honeywell at the Summit, which was organised by the American Conference Institute.
In terms of China inbound M&A deals for foreign acquirers, Svenska Cellulosa's acquisition of Vinda and Volvo's acquisition of Dongfeng Commercial Vehicles were two of the largest deals of 2013. PetroChina's acquisition of Taikang and Guolian Energy lead the pack for local M&A deals with Long Tan Hydropower's acquisition of Guangxi Guiguan Electric just behind.
Masroori observed that one of the key challenges is to find high quality companies that meet screening standards. This included reliable management and people that want to be kept on.
Participants at the Summit were reminded to consider the integration process from the beginning during an acquisition. In some cases, when a target has been acquired by a multinational, some of the value that was seen early on has been stripped away.
GSK sets example
Much discussion focused on the GSK bribery scandal at the summit with Ji Zou, managing partner of Allen & Overy's Shanghai office, asking Jan van der Putten, vice president for strategy and acquisitions at the life sciences company DSM, if this had had any effect on internal review processes.
“We have always been focused on this and in that respect nothing has really changed,” said Putten. Masroori shared a similar experience: “All the time we have been out here this has been at the top of our M&A message and one of the first steps is pre-screening for compliance.”
Participants noted that one of the key challenges with deals is that in China it is easy to find companies to acquire that have good growth, but profitability is more difficult. The China market is incredibly competitive, which makes pricing essential.
The Free Trade Zone
At the time of the Summit, the China (Shanghai) Free Trade Zone was creating a buzz among foreign companies operating in China. “This is something we are excited about and see it as a positive development,” said Putten.
Ji Zou noted that how attractive the Zone is really depends on the industry the company is involved with: “There is a chance that some of the restricted sectors may potentially open up – but everyone is waiting to see the detailed policies.”
Companies in the financial sector are trying to set up offices in the Zone and they may have a first mover advantage as they are the first to pledge their support for their zone.
Approval processes
There has been much talk this year of the government simplifying some of the approval processes for foreign companies. However, corporates at the Summit had yet to really feel any of the effects from these policies.
“Government approvals are part of doing business in China. We have not seen any rationalisation as of yet, but if it does not happen it is not really a big deal, as we have always been prepared for the timings,” said Masroori.
China Law & Practice has a media partnership with the American Conference Institute.
By David Tring
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