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 Those involved in the deals, which include ChemChina's $43 billion
agreement to buy Swiss seeds and pesticides group Syngenta <SYNN.VX>
and the two biggest-ever Chinese acquisitions of German companies,
say the two sides are making strides in mutual understanding.
China has for years sought to buy in key technology rather than
develop it at home more slowly, but attempts to reach deals have
often failed.
"The cultural dimension is very important," said Frank-Christian
Raffel, Munich-based partner in boutique advisory firm
MelchersRaffel, which specialises in M&A deals between
German-speaking and Asian countries.
"One serious issue is a lack of trust on both sides. Whatever one
side says is seen by the other as a tactic or a ruse, or is
overinterpreted."
One Chinese investor became so suspicious on learning that not all
of the German target company's top and second-tier managers had yet
been informed of the talks that the would-be investor walked out,
seeing it as a sign that key personnel might not stay on after a
takeover.
"For them, the transaction was dead. It took three or four meetings
to get the investors back to the table," Raffel said.
He added that when a Chinese firm was the target of a Western buyer,
it was not unusual for as many as 10 top executives of the Chinese
company to be present at M&A negotiations.
Negotiations in the "walkout" case got back on track, Raffel said.
He declined to name the firms involved because the talks are still
ongoing but said the target was a family-owned automotive supplier
with about 120 million euros ($136 million) in sales.
The traditional nervousness, however, seems to be ebbing. These days
an auction process is barely considered complete without at least
one Chinese bidder, German bankers say. That can help to keep bids
high, as Chinese buyers are often well-funded and have their own
particular valuation criteria.
"In the last 24-48 months, the Chinese have become markedly more
active and professional in foreign acquisitions. So investment banks
now approach the Chinese in virtually every auction," said Jan Masek,
co-head of mergers and acquisitions at HSBC in Frankfurt, who
advised ChemChina on the Syngenta takeover, alongside China CITIC
Bank.
Syngenta's advisers were Dyalco - the one-man business of former
Goldman Sachs <GS.N> M&A head Gordon Dyal, alongside JP Morgan,
Goldman Sachs and UBS.
WAVE OF CAPITAL
Outbound Chinese M&A topped $100 billion for the first time last
year, with Europe the biggest target region outside Asia. And
Germany is seen as especially attractive for its technology,
encouragement of foreign investment and business environment.
"There are several factors which tilt things towards Germany," said
Mikko Huotari, head of the foreign relations program at MERICS, a
Berlin-based think tank focused on China.
"We are seeing a new wave of Chinese capital entering Europe, and in
particular Germany."
In the past month, ChemChina has agreed to buy German industrial
machinery maker KraussMaffei for $1 billion, Beijing Enterprises
Holdings to buy Germany's Energy from Waste for 1.44 billion euros
($1.62 billion) and Chengdu Techcent Environment Co to buy
Bilfinger's water treatment unit for 200 million euros.
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Those deals will be dwarfed by ChemChina's planned acquisition of
Syngenta, which will be its biggest buy so far in the
German-speaking world provided a U.S. review finds no threat to
national security.
"In the U.S. it is getting increasingly difficult to obtain the
necessary permissions," says Christian Kames, Citi's Germany
investment banking head.
The United States last month blocked Philips's plan to offload a
part of its lighting businesses to Asian buyers.
Citi is advising private equity firm KKR on the sale of German
tableware and coffee machine maker WMF - whose consumer tableware
brand is increasingly popular with China's growing middle class. The
sale may draw Asian bidders.
All these takeovers have in common the acquisition of technology
that China needs to shift its economy from lower to higher-value
production - something Germany has in plenty.
"With technology gaps in areas such as next-generation lighting,
automation/robotics, environmental technologies and aerospace, we
expect to see a continued move to acquire know-how in these areas,"
Barclays analysts wrote in a recent note.
Chinese appliances maker Midea Group has rapidly built a stake of
above 10 percent in German industrial robot maker Kuka , while the
auction for German lighting group Osram's Lamps unit is widely
expected to be a contest between Chinese bidders.
PITFALLS
There are still pitfalls for Chinese companies buying German firms,
with language and culture named as the biggest challenges in a
survey of German companies and Chinese investors published by
consultancy PwC last year.
"Germans favor a direct communication style with a steady flow of
information. Chinese managers, on the other hand, expect large parts
of the information to be understood from the context of the
conversation," PwC wrote in a publication aimed at Chinese investors
in Germany.
Against that background, people like Yi Sun - who was born in
Shanghai, studied German from the age of 12 and has lived in Germany
for 18 years - are in high demand.
She is now head of Ernst & Young's China Competence Center for
Germany, Switzerland and Austria.
"The rising number of Chinese takeovers in Europe is also feeding
through to the labor market," she said.
"All M&A advisory firms are tearing their hair out to find
well-educated staff who speak Chinese, German and English - who
unfortunately, given the high requirements, are still a rarity."
(Additional reporting by Noah Barkin, Andreas Kroener and Alexander
Huebner; Writing by Georgina Prodhan; Editing by Andrew Roche)
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