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Compare the acquisition by Indian & Chinese firms
abroad in the last decade (2003-2013)
Dr. M. S. Mamik Singh
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M&A Activities in 2006 ...........................................................................................................................4
M&A Activities in 2007 ...........................................................................................................................5
M&A Activities in 2008 ...........................................................................................................................6
M&A Activities in 2009 ...........................................................................................................................6
M&A Activities in 2010 ...........................................................................................................................7
M&A Activities in 2011 ...........................................................................................................................8
M&A activities in 2012............................................................................................................................8
India’s M&A Scenario in 2013.................................................................................................................9
Trends & Patterns of M & A Deals in India ...........................................................................................10
Current Scenario in China M&A............................................................................................................12
PEST Analysis China...............................................................................................................................12
Regulating M&A Transactions...............................................................................................................14
Outbound M&A development from China ...........................................................................................14
Few big deals in the past 10 Years in China..........................................................................................17
Evolutionary Practices and Patterns in China:......................................................................................18
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M&A Trends and Patterns - India
India is the world 10th largest economy in nominal terms at US$1.8 trillion, 4th largest
on a PPP basis, US$4 trillion
Country has been growing at 8 – 10% until 2011, currently 5.5%, still one of the fastest
in the world for a large country
Service sector accounts for 57% of the economy, Industry 28% and Agriculture 15%
Figure 1: Sectoral Contribution to Indian GDP
o Population is 1.2 billion, very young, 70% below the age of 35
o India has a middle class estimated to be 300 million people.
o Growth is largely internally driven by domestic consumption from the middle
and emerging segments of society
o Labour force: 500 mil, Agriculture 52% of employment, Service sector accounts
for 34% and Industry 14%
India is ranked fourth in the most targeted nations rankings of the Asia Pacific region in the first
half of 2012 with USD 26.2 billion, down by 26 per cent when compared to the same period of
2011 (USD 35.2 billion). India‟s outbound M&A volume only reached USD2.8 billion in the first
half of 2012, the lowest figure for a half period since the second half of 2009 (USD 1.1 billion)
and down by an extremely significant 87 per cent from the record amount achieved in the first
half of 2010 (USD 21.1 billion). These statistics cover a vast array of M&A activities including
but not limited to acquisitions of companies, acquisitions of assets (divestitures), stake purchases,
mergers, joint ventures, spin-offs & split-offs, privatization, government awarded personal
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communications services / wireless licenses, real estate property transactions, and buy-back
transactions structured as public tender offers, as divestments or as a defensive technique in
response to an unsolicited takeover approach, among others.
Notable M&A deals for the first half of 2012 include the following:
a. In the insurance sector, there were two notable deals (a) the buy-out by Japan‟s
Mitsui Sumitomo of the entire 26 per cent stake that New York Life Insurance
Company owned in Max New York Life Insurance Company; and (b) Nippon Life
Insurance Company‟s acquisition of a 26 per cent stake in Reliance Capital Asset
b. Also of note was i-Gate‟s acquisition of the entire stake owned by Patni Computers
(81 per cent). Notable outbound deals included Piramal Healthcare‟s acquisition of
the Decision Resources Group in the United States, and Binani Industries‟
acquisition of 3B TheFibreglass Co in Belgium. More recent one is Infosys‟s
acquisition of Lodestone Holding AG, a Swiss technology consulting firm.
The sectors that dominated the inbound M&A in India during the first half of 2012
includedtechnology, insurance, professional services, and finance. Utility & energy, oil & gas, and
retail were left far behind.
M&A Activities in 2006
The India story continued to attract investors
from overseas as well as from within India in
2006.Corporate finance activity in India
witnessed 697 deals worth Rs 865 bn (US$ 19
bn) in 2006, a rise of 18% in deal value over
last year. The average deal size for 2006 was
around Rs 1,241 mn (US$ 28 mn).The
purchase of Hutchison‟s Indian telecoms
business was the biggest deal of the year.
Information technology, telecom and finance
deals have dominated all M&A activity with a
share of 48%of total deal value.
M&A Activities -2006
It Telecom Finance
Oil and gas Pharma Cement
Auto Media others
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M&A Activities in 2007
2007 turned into a remarkable year for Indian M&A, both at home and abroad. Spending more
money on overseas acquisitions than foreign companies did in their own market, Indian
companies have made their presence felt globally. Domestically 2007 saw another record year of
deal activity, with total mergers and acquisitions (M&A) and private equity (PE) deals up 82%
from Rs. 865 bn (US$ 21 bn) in2006 to Rs. 1,576 bn (US$ 38 bn) in 2007. As well as volume,
both number (867 against 697) and average size of deals also rose significantly. The real story of
the year is overseas, where Indians bought up companies in Europe and the USA, splashing out
some Rs. 1,367 bn (US$ 33 bn).The largest PE deal of the year was Temasek Holdings, along
with ICD, Macquarie, AIF Capital, Citigroup and India Equity Partners, acquiring a 10% stake in
Bharti Infratel, a telecom tower subsidiary of Bharti Airtel, for Rs. 41 bn (US$ 1 bn).Other major
deals included Goldman Sachs, Swiss Re and Nomura acquiring a 6% stake in ICICI Financial
Services, a financial services holding company, for Rs. 27 bn (US$ 646 mn); and Carlyle acquiring
a 6%stake in HDFC Ltd., a housing finance company, for Rs. 26 bn (US$ 643 mn).Unlike in the
past when growth was led by a few sectors, 2007 has seen a more broadly based activity. The
telecom sector overtook the IT Industry and dominated the M&A scene with a 33% share in the
total deal value. It was followed by finance with a 15% share, cement and building material 7%,
oil and gas 5% and metals 5%. One of the emerging sectors for this year has been aviation,
shipping and logistics accounting for 4% of the total deal value.
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M&A Activities in 2008
The year of 2008 was badly affected by the global slowdown. The value of international
investment dropped by over one-third in India. Globally M&A activity recorded a drop
of 31%. This is especially true in the major growth industries of Telecom and Parma, where
consolidation has increased and seems set to
continue. The total value of M&A and PE
deals for the year was down only 4% on
2007, at Rs.1, 511 bn (US$ 34 bn) – the first
year to year decrease since 2002-03. Average
deal size has survived the general downward
affliction, recording an increase from Rs1.8
bn (US$ 41 mn) to nearer Rs.2.1 bn (US$ 48
mn).Telecom and Pharma have been
stalwarts for India Inc., with the two sectors
cumulatively responsible for almost 50% of
this year‟s M&A deal value. Japanese
acquisitions – telecom major NTT DoCoMo
Inc.‟s entry into the country via its stake
acquisition of Tata Teleservices, and Daiichi
Sankyo‟s increased stake in Ranbaxy
Laboratories Ltd – have proved to be
highlights of the year. Out of the Rs.1027 bn
(US$ 23 bn) that flowed through M&A deals
this year, international investment contributed 65%, whilst domestic deals accounted for 35%.
M&A Activities in 2009
After the collapse of Lehman Brothers, everyone can
feel the tremors of global recession. The effect was
showing on India too even though the economy
showed signs of revival in the latter part of the
year.The year saw 650 private equity and M&A deals
with a total announced value of $16.9 billion. The
value of inbound deals reduced from $13.6 billion in
2007 and $9.7 billion in 2008 to $4.6 billion in 2009.
While the value of outbound deals was $1.8 billion in
2009 compared to $26.8 billion in 2007 and $9.94
billion in 2008. The year 2009 saw a surge of
domestic M&A activity. The value of domestic deals
M&A Activities -2008
Miscellaneous OilnGas Engng
cmnt and build Realestate Media
Power Finance Pharmahealthcr
M&A Activities -
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disclosed has increased to $6.02 billion in 2009 even though the volume of domestic deals has
decreased from 207 deals in 2008 to 187 in 2009.
Oil and Gas, Telecom and Pharma, Healthcare and Biotech sectors were the leaders as far as
sectorial values were concerned. These sectors garnered $2.53 billion, $1.78 billion and $1.04
billion worth of deals respectively. Together, they accounted for as much as 53% of the total
M&A deal value during 2009.
M&A Activities in 2010
Riding high on its instiable appetite for foreign
assets, India Inc announced merger and
acquisition deals worth a record of $55 billion
this year, including a record number of billion-
dollar transactions. So for this year, the total
announced deal value, according to research
firm VCCEdge – amounted to $54.6 billion,
significantly more than previous high of $ 42
billion in 2007. This year, corporate India has
announced 546 M&A deals. The total value of
domestic deals in October 2010 was $40
M&A Activities -2010
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M&A Activities in 2011
The bleak economic prospects and turbulence in financial markets result in a drop in mergers
and acquisition deals involving Indian companies in 2011. Barring private equity buyouts, most
deal categories saw a fall in activity. Overseas buyouts by Indian companies plunged as the
ongoing crisis in developed markets and the sharp fall have resulted in firms turning
cautious.The value of India-focused merger and acquisition (M&A) deals touched USD 39
billion in the first nine months of this year, a significant 31 per cent decline vis-a-vis the
corresponding period last year. Despite ranking among the Top 3 locations for M&A deals in the
January-September, 2011, period, India was also the country that witnessed the maximum
decline in the combined value of M&A deals. 2012 will surely be an interesting year to watch out
how the future M&A deals shapes up.
M&A activities in 2012
The value of M&A deals involving India rose 12% to US $ 43.4 billion in the calendar year 2012
with the largest volume coming in the fourth quarter and the average deal size amounting to US
$ 91 million. Data compiled by Thomson Reuters shows that Indian acquisitions overseas rose
12% with deals amounting to US $ 11.6 billion while foreign firms acquiring Indian companies
have declined 23% to US $ 15.3 billion.Domestic M&A deals stood at US $ 12.3 billion, up 69%
over year 2011. Total cross border deals stood at US $ 26.9 billion down 11.6% over previous
Of the US $ 43 billion total M&A value, fourth quarter saw deal value of US $ 17 billion, up
362% over corresponding period. The M&A deals was driven by the merger of Sesa Goa, a
55%-owned unit of Vedanta Resources, with Sterlite Industries in a deal valued at US$3.9 billion,
the largest M&A transaction involving India this year. Concurrently, as part of Vedanta's
restructuring move, Vedanta Aluminum and Madras Aluminum will be consolidated into the
new merged entity called SesaSterlite.
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M&A activities totalled to US $ 97.4 billion in Bric countries (Brazil, Russia, India and China).
India share accounted for 15.7% while China had the highest share of 36%.
Among inbound deals, UK registered the highest value of inbound M&A deals targeting India
with 48.7% market share worth US $ 7.4 billion. US and Japan accounted for 13.2% and 12% of
India’s M&A Scenario in 2013
India Inc's shopping spree witnessed a significant slowdown in the first quarter of this year as
deal volume plunged 75 per cent over last year but the deal tally could pick up steam in the
coming days driven by the government's push to attract FDI. According to audit, tax and
advisory firm Grant Thornton, the total number of merger and acquisition transaction in the first
quarter of this year stood at USD 4.56 billion, down from USD 18.39 billion in the same period
last year. The quarter clearly saw decline in deal activity, possibly driven by interplay of factors
given the macro conditions as well as the pressure on liquidity. Given the FDI regulatory
changes in various sectors and Government's push to attract FDI, M&A deal activity should pick
up this year. Interestingly, excluding the internal mergers and restructuring, M&A deal values in
the first quarter of this year were up 14 per cent as compared to first quarter of 2012. In the first
quarter of 2012, out of the total M&A value of USD 18.39 billion, merger and internal
restructuring deals amounted to USD 14.43 billion. Inbound deals were the flavour of the very
first quarter of this year as the total value of inbound deals wherein foreign companies or their
subsidiaries acquired Indian businesses was USD 2.90 billion (through 29 deals) compared to
USD 1.26 billion (by way of 36 deals) in first quarter of 2012. The total value of domestic deals
in first quarter of 2013 was USD 1.41 billion (via 66 deals) as compared to USD 2.01 billion (71
deals) during the corresponding quarter in 2012.The total value of outbound deals (Indian
companies acquiring businesses outside India) in first quarter of 2013 was USD 0.19 billion (21
deals) compared to USD 0.69 billion (26 deals) during first quarter of 2012.Pharma and
healthcare space dominated both M&A activity in the quarter. MylanInc's acquisition of Agila
Specialties (Strides's injectable business) for USD 1.8 billion was the top deal for the quarter.
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Trends & Patterns of M & A Deals in India
With the increasing number of Indian companies opting for mergers and acquisitions, India is now
one of the leading nations in the world in terms of mergers and acquisitions. Among the different
Indian sectors that have resorted to mergers and acquisitions in recent times, telecom, finance,
FMCG, construction materials, automobile industry and steel industry are worth mentioning. The
situation of mergers and acquisitions in India has undergone a sea change in the last couple of years.
In Indian corporate sector mergers and acquisitions of foreign companies by the Indian companies
has been latest trend. There are different key factors like dynamic attitude of Indian entrepreneurs,
buoyancy in economy, favorable government policies, additional liquidity etc. behind the changing
scenario of trends of mergers and acquisition in India. The IT and ITES sector have already played a
dominant role in global market. The other Indian sectors are following the same trends. The increase
participation of the Indian companies in the global corporate sector has further facilitated the
merger and acquisition activities in India
Large investment banks are taking a back seat to trading and merchant banking. M&A is
increasingly viewed by large investment banks as a means to winning ancillary assignments such
as underwriting. One of the drivers for the continuation of M&A transactions with technology
companies is that the largest technology companies have tremendous levels of cash. The
Government of India has finally introduced a set of reforms to liberalise foreign direct
investment policy in key sectors such as multi-brand retail trading, aviation, broadcasting and
power exchanges. This marks a major step towards boosting investment in these sectors.
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Taking multi-brand retail trading as an example, global retailers can now enter the Indian
retail market by investing up to 51%, with prior Government approval. Foreign investors must
make a minimum investment of US$ 100 million, with at least 50% to be invested in „back-end
infrastructure‟ within three years; at least 30% of products must be sourced from „small
industries‟ (plant and machinery investment not exceeding US$ 1 million).
The implementation of the policy has been left at the discretion of individual states in
India. Some states including Delhi and Maharashtra have already approved implementation of
the policy. The policy has been warmly welcomed by global multi-brand retailers who will now
be allowed to explore joint venture opportunities with Indian partners. There will also be
opportunities for related logistics, technology and infrastructure businesses.
The Government of India expects the policy to have a positive impact on India‟s
economic development, creating job opportunities, improving technology and infrastructure,
helping farmers and small manufacturers, benefiting consumers both in terms of quality as well
as price, and boosting real estate development.
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M&A Trends and Patterns- China
Current Scenario in China M&A
Merger and acquisition activity has increased dramatically in China over the last several
years.While such transactions were virtually unknown a mere ten years ago, they are now
anincreasingly common and important feature of China‟s economic landscape. The M&A
routenow offers foreign investors a viable method of entering the China market.
China‟s economic reforms and robust growth have fuelled the increased pace of M&A
activity.China‟s accession to the World Trade Organisation has opened previously closed
industry sectorsto foreign investment, and is gradually lifting operating restrictions previously
imposed onenterprises with foreign investment, permitting greater access to China‟s domestic
With the continued strong growth of the Chinese economy, M&A transactions
offeringimmediate market access are becoming an increasingly attractive alternative to green
fieldinvestments.Concurrently with this market reform, China has been restructuring its state-
owned assetholdings. In a few industrial sectors, the State is encouraging state-owned enterprises
toconsolidate into large integrated conglomerates, which are intended to be global leaders intheir
fields, while in other sectors, the State is actively seeking to reduce the level of its equityholding.
Consequently, a large number of state-owned enterprises are being made availablefor
restructuring or partnering with foreign firms. These new potential targets offer foreigninvestors
greater market entry options.
PEST Analysis China
i. Social forces
China has amazing demographical resources, and is expecting to growth to “1,343,239,923”
individuals, as of July 2012 (Central Intelligence Agency, February 21, 2012) . It is an important
fact that Chinese population is rapidly growing and thus China will try to expand in other
Wang describes a change in the Chinese culture where they are becoming more materialistic. He
explains that “rising consumerism in the urban China has featured the increasing complexity of consumer culture
[where] shopping is no longer an unavoidable search for daily necessities but has become a social pastime”. The
latter emphasis that China‟s market is developing and the needs of its individuals are rising to a
new level, opening an entirely new and expanding demand. This will surely increase competition
both internally and externally, bringing in foreign investors. Furthermore, this will open the
door for new potential mergers and acquisitions.
ii. Political forces
Unlike other governments, China has sustained a communist government for more than half a
century. The communist ideology has been part of a norm and is completely embedded in their
culture and tradition. The main political party is called the Communist Party of China (CPC) and
although there exist smaller parties, they have not been successful at growing in power. It can be
argued that “China’s political system is inherently unstable and unable to respond to the wider changes taking
place in society”. The latter describes a need for a change to move to a more adaptable and
comprehensive political system, combating arising tensions from different sub-regions of China.
Experts believe that China is on its way to a major transition and believes that the arrival of the
“fifth generation of leaders […] which will be expected to rule for the subsequent 10 years“ will bring the
needed changes to China. . Perhaps, this will ameliorate China‟s international relations.
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China has difficulties maintaining positive relationships with its neighbouring countries. Indeed,
“China’s relationship with Taiwan remains problematic, with Beijing refusing to rule out the threat of force in the
event of a declaration of independence by Taiwan” (China Commercial Banking Report, 2012, p. 8). One
can see the same tension between China and Tibet. Theoretically, this should not ease the
importation or exportation of goods to China.
China has always been very cautious when working with foreign firms. They have implemented
many regulations to protect themselves from foreign investors. However, in the early 2000,
China agreed to sign the World Trade Organisation (WTO) although many believed that this
would not “inspire [an] increased foreign investment in the emerging giant of the world economy” . The latter
argument is due to the fact that they believe “China’s regulatory structure for foreign-funded mergers and
acquisitions (M&A) is struggling to keep up with the emerging market for cross-border corporate control”. The
regulatory framework shows that China is still too defensive and is hiding behind its regulations
to still maintain some semblance of control over its economy.
Another factor which may deter foreign investors is the fact that China is not respecting Human
Rights policies which hinders its ability to create successful international relations. Many
organisations assemble in protest against China‟s lack of respect for perceived global rules. This
will especially affect the vision people might have of mergers and acquisitions with China,
rendering a negative vision of any kind of alliance.
Moreover, when dealing with mergers and acquisition, there is a strong need for developing
strong relationships based on trust and it is plausible that China is not perceived as a trustworthy
environment, due to the “growing corruption, widening inequalities, increasing rural poverty and
iii. Economic forces
“China is the fastest-growing major economy in the world”. Moreover, “in 2010 China became the world’s
largest exporter”. The GDP of China was estimated at “$11.3 trillion”.
China economy changes in terms of “gradual liberalization of prices, fiscal decentralization, increased
autonomy for state enterprises, creation of a diversified banking system, development of stock markets, rapid
growth of the private sector, and opening to foreign trade and investment”. China is reforming itself by
gradually removing government market regulation and price fixing. This helps China to increase
their international activities and to stabilise their economy.
China is just known for their manufacturing excellence and not famous for R&D or high
tech. This ideology is becoming more and more absurd. Wang explain that the increase in
domestic income has attracted a lot of foreign investors and “intensified competition [which has] greatly
inspired retail innovations in a relatively monotonous market, and led to the emergence of many new retail
China is very active in the import and export business and this has left it vulnerable to market
fluctuation and increased their exposure to foreign exchange risk. China‟s focus on exports “made
it vulnerable to the global recession”. China suffered from the recent recession which created “major
imbalances and environmental degradation”. Furthermore, this has also impacted the social
environment “leading to job losses in China’s export sector and thus increasing social instability”.
iv. Technological forces
China‟s infrastructure is well developed in the major cities such as Shanghai. However, rural
areas are still largely underdeveloped.
In order for them to remain competitive, they seek technological improvement. “From the 1990s,
retail technologies, such as computerised cash-register systems, point-of-sales information systems with universal
product code (UPC) barcode scanning, and radio frequency identification, began to be widely employed”.
Furthermore, Wang argued that major transformation and new technology implementation were
mainly used in the consumer industry, such as by supermarkets.
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Regulating M&A Transactions
Government agencies play an important role in Chinese M&Atransactions. There is a
higher level of government participation inM&A transactions in China than is typical in other
jurisdictions.Despite the recent relaxation of foreign investment restrictions,pervasive approval
requirements remain a distinctive feature of M&Atransactions in China.
In these transactions, PRC government agencies do not merely act as anti-trust or
competitionregulators. Their concern is not limited to the economic consequences of a
transaction. Theyplay a much broader role in reviewing and approving deal specific
arrangements. In manyM&A transactions, government agencies act as both regulator and
vendor, and will have socialconcerns that extend well beyond the commercial aspects of the
transaction.The discretionary approvals required for an M&A transaction are not mere
formalities, andmay take considerable effort to obtain. Understanding the applicable regulatory
frameworkand the government‟s role in the acquisition process is important to successfully
concludingtransactions in China
Outbound M&A development from China
Chinese M&A activities rose rapidly in the past decade. Before 2000, only SOEs(State-Owned-
Enterprises) were allowed to buy small stakes in overseas energy company and companies with
natural resources. Beijing called that yinjin lai (or “pull in”).
In 2000, shortly before China signed the WTO, the Chinese government decided, in order to be
globally competitive, to announce “zou chuqu” a policy that permitted Chinese companies to make
acquisitions abroad. The result was that the number of Chinese M&As increased quickly and “shot
from $1.6 billion in 2003 to $18.2 billion by 2006”. This caused worldwide unease about a Chinese
takeover threat. However, the first wave Chinese takeovers ended in big failures, resulting in
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Chinese companies pulling out or selling off their acquisitions. After those failures, the target of
Chinese companies steadily shifted to mainly asset based or R&D specialised companies.
The reason for the first failures in M&A`s was that Chinese companies tried to take over companies
in the EU in order to penetrate the market. Proper due diligence was missing and the companies
taken over were in severe financial trouble already which the inexperienced Chinese companies
weren’t able to turn around.
The strategy of Chinese companies to buy foreign companies and grow sales, resulted in failure. The
intention of Chinese companies was to buy western global brands and distribution relationships to
combine it with Chinese’s low-cost manufacturing capacity. At the end, it turned out to be too
expensive and failed due to errors from the acquirer.
That fact led to regulation from the Chinese government to allow only companies with proper
managerial capabilities and merger integration experience to attempt M&As. As a result M&As were
shot down from the Chinese government e.g. when the unknown company Sichuan Tengzhong
Heavy Industrial Machinery wanted to acquire General Motors’ Hummer division.
In the second wave of Chinese M&As, the Chinese companies targeted heavy asset based companies
such as coal mines. Asset based companies can be more easily assessed by engineers and thus due
diligence is relative easy. Chinese companies don’t have to worry about brand evaluation and
corporate culture as companies with tangible assets mostly have proven supply chains and hence
operations can be left alone. Furthermore, the demand in China for the resources from those asset
based companies is very high.
Third wave: Chinese companies targeted companies with strong R&D focus and smaller companies
because those companies were a good fit to the Chinese mass manufacturing excellence. Though
R&D is more complicated to integrate, there is less risk involved. The willingness of the Chinese
company to invest in R&D and the prospect to sell innovations to Chinese markets excites foreign
researchers and thus the motivation is generally high to make a successful M&A happen. The
combination of new innovative ideas for products and processes and the Chinese ability to scale the
inventions and the low manufacturing costs are a good combination. Forth wave: Acquire foreign
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company and bring back to Chinese markets. The fourth wave is very promising and the future will
show the results.
Overall M&A in China (inbound, outbound and domestic) reached a peak in 2010 with US$ 209
Bil of transactions (up 27% over 2009) in 4,251 disclosed transactions. 2010 and 2011 also
confirmed the healthy rise of outbound transactions: between 2009 and 2010, outbound
transactions grew by as much as 30%, with 188 transactions and a combined value of US$38 Bil
(up from 144 deals and US$ 30 Bil in 2009). In 2011, outbound transactions reached US$ 42.9
Bil, up 12% from 2010 (across 207 deals, +10% over 2010) . Yet, outbound transactions
represented a mere 18% (in value) of the total China M&A market, dominated by domestic
transactions. The local market – highly competitive and undergoing consolidation in many areas,
grew by 6% to reach 2,947 disclosed deals in 2010 (US$131 Bil in value, up 41% over 2009).
Despite a 10% growth in domestic transactions in H1‟2011 (reaching 1,616 deals), the overall
China M&A market slightly contracted in 2011 to reach US$ 201 Bil in value (-4% from 2010).
To explain the steady growth of China‟s outbound transactions, one has to look into deeply
rooted factors: since the 1990s, China has engaged in a consolidation and restructuring process
for strategic industries with the aim of creating national champions with global ambitions.
China‟s State Council selected a batch of business groups to undergo trial reforms in 1991. 57
large groups were selected in key industries. By 1997, there were 120 of these large groups. To
help them succeed, Beijing has been providing a set of powerful tools including highly favorable
regulations (creating barriers to entry), local credit support and generous export credit and
subsidies. For example, early 2009, the five main Chinese commercial banks issued about US$ 22
Bil worth of loans to support 11 different M&A deals . That included the massive US$ 21 Bil
loan granted to Chinalco for its (failed) bid to Rio Tinto.
The credit terms of this loan were amazing. Chinalco would have paid only 0.945%
above 6-month LIBOR, when competing bidder, BHP Billiton, the world's largest mining
company then, would have paid 3.45% above 6-month LIBOR for a 5-year bond or 3.9% above
6-month LIBOR for the 10-year bond. The Policies set out in the 12th Five Year Plan ratified in
spring 2011 by the Central Committee of the CPC are a logical extension of these “go global”
guidelines enacted 20 years earlier. The recent Policies are encouraging consolidations and
restructuring, particularly in the Automotive, Steel, Cement, Aluminum, Rare Earth Metals and
Chemicals sectors. The 12th Five Year Plan also strengthens and encourages Chinese companies‟
overseas ambitions in “Seven Strategic Emerging Industries”, such as energy efficiency and clean
energy, environment protection, advanced materials and next-generation vehicles, IT,
manufacturing and biotechnology.
The largest outbound M&As are traditionally happening in the natural resources sector,
the most strategic sector for the local manufacturing industry. Most transactions in the sector are
beyond US$ 1 Bil, the largest being the acquisition of Addax Petroleum (Canada-based) by
Sinopec for US$ 8.1 Bil in 2009 and the acquisition of 40% of Repsol YPF‟s equity in Brazil by
the same Sinopec for US$ 7.1 Bil in 2010. In 2011, there were 16 outbound transactions above
US$ 1 Bil in value (compared with 12 in 2010), 14 of these transactions occurring in the natural
resources and energy fields. The manufacturing sector comes second: one of the largest
transactions of 2010 was the US$ 1.8 Bil acquisition of Volvo by Geely. Smaller transactions
(US$ 50-100 Mil) took place in textile, machinery, logistics, transportation, hospitality
etc.Geographically, the US became the main destination for outbound M&As, with 32 deals in
2010 (vs 21 in 2009) followed by Europe (20 deals), Africa (17 deals) and Japan (16 deals). While
Asia remained China‟s second largest outbound M&A destination (33 deals in H1‟2011), Europe
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transactions grew faster in H1‟2011 to exceed all 2010 transactions (30 in H1‟2011 vs 20 in
Two very large transactions marked the end of 2011 and confirmed the trend that
Chinese SOEs and large private enterprises are taking well advantage of a low euro and US dollar
against the Yuan, that they recognize the strong brands and technology developed in the West
and that they now have the confidence to go after much prized national assets, for example
during a series of privatizations in Europe aimed at reducing budget deficits. In December 2011,
China Three Gorges Group, the operator of the Three Gorges Dam (China‟s largest hydropower
developer), announced the acquisition of 21.35% of Energias de Portugal (EDP) for a whopping
EUR 2.69 Bil. EDP accounts for 9% of Portugal‟s GDP and is also the main power generator in
Brazil, an attractive destination for the Chinese Group and Chinese SOEs in general. Earlier in
December, HNA Group (the parent company of Hainan Airlines, a group claiming US$ 10 Bil
revenue in 2010) acquired the world's 5th largest marine container leasing company, GE SeaCo,
a transaction estimated at US$ 2.5 Bil.
China‟s outbound M&A history has been marred by painful failures, reminding us that
relationship and partnership building, lobbying and soft skills are critical tools that Chinese
companies must acquire when conducting overseas transactions. The failed Chinalco bid on Rio
Tinto in 2009 (and elder failed attempt of CNOOC at Unocal in 2005) served as a testimony that
Beijing aggressive export-driven policies, via Chinalco and CNOOC, were perceived as
“reckless”, “unfair” and even “hegemonic”, thus frustrating foreign parties‟ sensitivity and
patience. The human aspects of the post-merger integration and local politics in the country were
also very much overlooked. Trying to outmaneuver one‟s own regulator at home could also be
fatal, like in the Tengzhong‟s failed bid at GM‟s Hummer in 2009-2010. Not only did China‟s
MOFCOM not see a deep connection and synergy between the heavy machinery maker from
Sichuan and the luxury vehicle manufacturer, but press releases mishandlings and attempts by
Tengzhong to move the deal offshore in hope to save tax liabilities for GM were futile (and
totally illegal ) as it would have been impossible to build a manufacturing plant onshore for
Tengzhong-Hummer without MOFCOM and other authorities‟ approval.
Learning from some of these historical failures, many Chinese companies have taken a
more conservative approach by forming a JV or becoming minority shareholders in a target
company before acquiring it entirely. Chinese companies also started to take integration issues
seriously and to answer such key questions as: “what is the acquisition for?”, “what is the vision
of the merger?” or “are there enough synergies between the two companies?”. A pattern, mainly
related to the economic crisis in the West, also emerged: Chinese companies now tend to target
weak or distressed companies with shareholders seeking an exit or companies needing entry into
the Chinese market but who do not have the financial means to do so.
Few big deals in the past 10 Years in China
• 2004: TCL acquired Alcatel Mobile phone division. Starting with a JV, TCL acquired the
remaining part of the JV in 2005 and turned around the company (total cost: EUR 110 Mil).
Strong of its experience, TCL then acquired (2011) the main assets of France‟s Sagem Wireless,
which included a 450-people R&D Center in China‟s Zhejiang province (disclaimer:
Shanghaivest conducted this transaction).
• 2005: Lenovo bought the laptop division of IBM for US$ 1.25 Bil and took over US$ 500 Mil
of IBM‟s debt. IBM first took 18.9% of Lenovo and signed a 5-year cooperation agreement with
Lenovo. Meanwhile, Lenovo took ownership of IBM‟s R&D centers in Japan, US and the
Shenzhen factory (10,000 employees) and for five years, Lenovo products were supported by
IBM after-sales organization and maintenance centers.
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• 2010: Fosun purchased 7.1% of Club Med (luxury tourism) for an estimated EUR 22 Mil and
in 2011 purchased an additional 2.8%. The synergy was strong as China is becoming the first
luxury market in the world circa 2015 and Fosun was on paper a good partner to help Club Med
localize their concept to the local affluent population. Fosun later acquired 9.5% of FolliFollie,
an Athens-listed luxury company for EUR 84.6 Mil. FolliFollie already had hundreds of stores in
China, so it was already a local success story.
• 2010: Zhejiang Geely announced they purchased Volvo (from Ford) for US$ 1.8 Bil. To win
the deal “emotionally”, Geely reiterated that the company would retain its headquarters and
manufacturing in Sweden and Belgium, and that the board would remain mainly Swedish, giving
much freedom to Volvo‟s management. In February 2011, Geely and Volvo‟s CEOs also
announced a US$ 11 Bil five-year development plan, including prospective China plants and the
hiring of 1,200 engineers in Belgium.
Evolutionary Practices and Patterns in China:
M&A in china is growing; successful companies such as Haier, Lenovo are on their way to becoming
truly global companies. American and European companies realize this and even start to fear a
threat from those Asian companies.
As already explained in the previous chapter, there are three major reasons for Chinese companies
to expand abroad which are securing natural resources, acquiring technologies and know-how and
fighting against growing competition in their home markets.
Those Chinese companies that were successful abroad went through 4 stages in their M&A process.
Learning phase à Build-up phase à Internationalisation phase à globalization phase (see figure).
Challenges and solutions were different in each stage, with cross cultural challenges being especially
important in the last two stages
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Global companies are more active in acquiring entities in China than in India, as the China focused
M&A activity this year so far amounted to a whopping $ 84.3 bn, while India-targeted M&A volume
was just $ 24 bn.
According to global deal tracking firm Dealogic, India inbound M&A volume surged to $ 24 bn in
2011 so far, while China targeted M&A volume reached $ 84.3 bn in the same period. "India and
China have been the most targeted nations by acquirors outside the region - posting volume gains of
191 per cent and 76 per cent respectively year-on-year," Dealogic said.
The United Kingdom dominated the acquisition scene this year with $ 19.2 bn announced deals so
far, surpassing the US for the first time since 2007 (in the comparable period). BP's $ 9 bn acquisition
of Reliance Industries' oil & gas assets was the deal that pushed the United Kingdom to this coveted
position. BP's $ 9 bn bid for 23 oil and gas blocks from Reliance Industries in February still stands as
the largest inbound M&A in India so far this year and is also India's second biggest inbound cross-
border deal on record. The UK is the top acquirer into India with $ 15 bn - much more than the value
seen in the comparable period last year ($ 157 million) and accounts for 62.6 per cent of India
inbound M&A volume in 2011 so far. China targeted M&A volume, which stood at $ 84.3 bn in this
year so far, witnessed 13 per cent surge from the $ 74.6 bn announced in the same period last year.
In terms of number of deals also there were 1,808 transactions this year so far, up 4 per cent from
1,733 deals announced in the same period last year.Other leading acquirer nations into India this
year so far were the United States (18 per cent), Germany (6 per cent), Japan (4 per cent), Denmark
(3 per cent), the report said. Though year-on-year there has been an increase in inbound M&A
volume, on a quarter on quarter basis there has been a significant decline. India inflow M&A volume
totalled to $ 3.9 bn in the second quarter of this year, down a whopping 81 per cent from the record
quarterly volume of $ 20.1 bn achieved in the first quarter of 2011, Dealogic said.
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China Commercial Banking Report. (2012). SWOT Analysis‟ 2012. Business Source Complete , pp. pp. 7-10.
Chinadaily. (2011). Retrieved February 26, 2012,from http://www.chinadaily.com.cn/business/2011-
Central Intelligence Agency. (February 21, 2012). East & Southeast Asia :: China. Retrieved February 28,
Economy Watch. (28, Feb 2012). China (People’s Republic of China) Economic Statistics and Indicators. Retrieved
February 28, 2012, from http://www.economywatch.com/economic-statistics/country/China/
Opportunities Across High-Growth Markets: Trends in Cross-Border M&A, Baker & McKenzie