China: A Fickle Global Shopper 中国企业缺乏并购经验

By newsdoug on December 20, 2011

China M&A foundations still shaky Three recent global M&A deals by Chinese firms outside the resource sector are highlighting the country’s potential as a major new player for such deals, but also its unreliability, as only 2 of the 3 deals ultimately collapsed. This ratio of 2 failed deals for every successful one could well indicate what we will see from China over the next 2-3 years, as many deals collapse for a wide number of reasons, from lack of financing to disapproval by Beijing, or even changes of heart by fickle acquirers. In the most high-profile of the 3 recent deals, a months-long effort by 2 obscure firms to buy a controlling stake in Saab has finally collapsed, with the dying Swedish automaker officially filing for bankruptcy. (English article) The deal, which would have seen Pangda Automobile (Shanghai: 601258) and Youngman Lotus take their stake in exchange for a big cash infusion, looked desperate from the start, and I predicted it was doomed to collapse due to lack of experience by the 2 companies and disapproval from Beijing. (previous post) The other 2 deals involve HNA Group, the investment arm of the Hainan provincial government, which is shaping up as a relatively savvy player as it embarks on a global M&A drive using its cash pot of more than $6 billion. (previous post) In one of those deals, the company just completed its $1 billion purchase of GESeaCo, the container leasing arm of General Electric (NYSE: GE). (English article) HNA made the bid together with a non-Chinese firm, Bravia Capital, which may have played a key role in the successful completion. HNA’s other recent deal wasn’t so successful, with the company citing financial market turbulence behind its decision to suddenly abandon a previous pledge to buy 20 percent of Spanish hotelier NH Hoteles (Spain: NHH). (English article) My only observation in this case is that HNA should have considered that factor much earlier in the process rather than waiting until the last minute, a decision that caused NH Hoteles shares to plummet 30 percent since the decision. All this goes to show that Chinese firms may have plenty of cash and want to do more major global M&A, but that they will be highly unreliable buyers for the next few years due to inexperience — a factor that many foreign sellers need to consider before starting any negotiations.

Bottom line: A recent string of 3 major global M&A deals by Chinese firms, 2 of which failed, show these firms want to become major players but will stumble frequently due to inexperience.

Enjoy this blog? Please spread the word :)