M&A: Lenovo Slows, Suning Surges 并购：联想集团减速 苏宁加速
Some interesting signs are coming from 2 major Chinese tech firms on the M&A front, with PC leader Lenovo (HKEx: 992) signaling it may finally slow down its acquisition frenzy, even as e-commerce aspirant Suning (Shenzhen: 002024) sends the opposite message with its announcement of a new major purchase. The news from Lenovo would represent a welcome break from the company’s steady stream of acquisitions, which look destined to give the company some major indigestion as it tries to digest such a wide array of assets in a number of very different markets. Meantime, Suning’s purchase of an e-commerce site targeting infants and toddlers isn’t too worrisome by itself, but from a broader perspective also reveals a company trying to grow too big too quickly.
Let’s look at Lenovo first, as this new strategic direction is one that the company has needed to take for quite a while. I’d like to think Lenovo chief Yang Yuanqing has finally heeded my repeated calls for the company to slow down its acquisition spree that saw it make major purchases in Japan, Germany, the US and Brazil since the beginning of last year. But I suspect Yang isn’t a reader of my blog, and instead perhaps he decided to slow his buying frenzy at the suggestion of his mentor, Lenovo founder and former chairman Liu Chuanzhi.
In fact, domestic media are quoting Liu himself, who is still chairman of Lenovo’s parent, Legend Group, as saying that the PC giant he founded won’t acquire anymore hardware makers. (English article) Speaking to a meeting of newspaper editors in Beijing, Liu also said Lenovo’s recently announced acquisition of Brazil’s CCE should propel the company to its long-sought goal of surpassing Hewlett-Packard (NYSE: HPQ) as the world’s biggest PC maker; and he added that any Lenovo acquisitions in the future will be in the software and IT services space.
My main reaction to this shift in direction can be summarized with a single word: Congratulations! Of course, that doesn’t mean that Lenovo’s problems will all suddenly be solved, since it must still integrate all of its recent acquisitions. I still predict some major pain for the company in the next 2 years as it suffers from M&A indigestion, but perhaps after that it will start to look like a real industry leader.
Meantime, Suning has announced it will buy RedBaby.com.cn for $66 million to expand into the e-commerce market targeting babies and young children. (English article; Chinese article) As I said above, this purchase by itself doesn’t look too bad as a stand-alone deal; but from a broader perspective, it does seem like Suning is trying to do too much too quickly as it seeks to become a retailing giant equivalent to Walmart (NYSE: WMT) in the traditional retail space and Amazon (Nasdaq: AMZN) in e-commerce.
Suning is best known as one of China’s biggest traditional sellers of consumer electronics, operating a chain of hundreds of stores throughout China. More recently it has been on an aggressive campaign to build up both its brick-and-mortar and online businesses, spending hundreds of millions of dollars to build up its website and also recently announcing the launch of a new Suning Expo general merchandise concept that will look more like Walmart. (previous post)
To fund all that activity, the company last month announced it would issue its first-ever corporate bonds worth up to $1.25 billion. I applaud Suning for its big vision, but would caution it to slow its expansion and focus on 1 or 2 key initiatives at a time. Otherwise it could find itself losing its focus, which would ultimately hurt all of its businesses.
Bottom line: Lenovo’s decision to slow its M&A looks good but could be too late to avoid a case of indigestion, while Suning’s new M&A continues a worrisome trend of expanding too quickly.
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