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Deutschland. Verlagsspecial. Know-how für den Mittelstand. Musterbeispiel für Zusammenarbeit. Chinesischer Serienkäufer

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August 201314,80 Euro

Vertrag ist nicht

gleich Vertrag

Kulturelle Differenzen in

M&A-Verhandlungen

Musterbeispiel für

Zusammenarbeit

Wie KION von Weichai Power

profitieren will

Chinesischer

Serienkäufer

ShangGong-CEO Zhang Min

im Interview

Verlagsspecial

M&A China/

Deutschland

(2)

| Unternehmeredition M&A China/Deutschland

16

Despite increasing M&A volumes over the last years, there are still some severe

chal-lenges German and Chinese companies have to face when entering the foreign market.

In the following panel discussion leading experts debate the most critical hurdles in

Sino-German M&A deals.

Unternehmeredition: What are the major problems concerning M&A deals between China and Germany?

Susan Lam, Director Germany & Central Europe, Hong Kong Trade Development Council (HKTDC): The lacklustre Euro-pean economy may be of concern to Chinese investors seeking advanced technologies from Germany and to en-hance their brand awareness across Europe through Chinese-German mer-ger and acquisition (M&A) deals. But the tight credit conditions in Europe and the competition for the outward direct investment (ODI) from the Chi-nese mainland will continue to increa-se. This development will make it less profitable for German companies to forge M&As.

Daniel Mahnert-Lueg, Managing Director China, Westlake Partners: German com-panies too often fall in love with the first consultant with China contacts they meet without really knowing who that is. And they underestimate the cultural differences. Small companies have to be optimistic because they do not have the resources for a systema-tical approach. Once the company has successfully entered the market, it has to review its plans in order to have a systematic approach.

Dr. Thomas C. Sittel, Director, goetzpart-ners CORPORATE FINANCE GmbH: The primer challenge Chinese parties en-counter in outbound transactions is

well reflected in a popular Chinese proverb: “Think three times before you move.” In many cases Chinese

buyers are still reluctant to engage in condensed timelines and auction pro-cesses. An exemplary statement from a meeting with a potential buyer in Beijing: “Only 7-8 months until signing?! This is nothing we can deal with!” Fur-thermore, outbound M&A processes require approval from various Chi-nese authorities (e.g. SASAC, NDRC, MOFCOM, SAFE, CSRC) which fre-quently makes Chinese buyers slower and less predictable. Inexperienced sellers are often surprised, when all but one Chinese party retreats from the process simultaneously. Even with strong connections to the authorities, it is very hard predict, who will be the “chosen one”.

Eng Choon, Managing Director, ZJ (Shang-hai) Advisory Co., Ltd.: Due to the dif-ferences in cultural and business practices, it is very common for a private enterprise in China to keep at least two sets of books, i.e. one for the local tax authority and the other for management reporting purposes. In addition, there are differences in accounting standards as most Chi-nese companies’ (especially the pri-vate enterprises) accounting practice is very much influenced by the local tax regulations/practice, which is on cash basis, compared to the ac-crual basis adopted by International Accounting Standards (IFRS). The “cash” accounting may distort the evaluation of the performance/valua-tion in M&A deals.

German

compa-nies too often fall

in love with the

first consultant

with China

con-tacts they meet

without really

knowing who

that is.

DANIEL MAHNERT-LUEG Managing Director China, Westlake Partners

(3)

What are the major challenges for German companies entering the Chinese market?

Choon: Frequent changes and updates in PRC laws and regulations especially after China’s accession into WTO has put tremendous pressure on enterpri-ses (foreign and local) to cope with the changes. The situation is aggravated by different interpretation and implemen-tation of national laws and regulations in different cities and even within the same government offi ce of a city, the interpretation and implementation of laws could vary. Furthermore, there is

diffi culty for enterprise to recruit and retain qualifi ed management person-nel with good management skill and reasonably good command of English (not to mention other languages such as German and French).

Mahnert-Lueg: The German “Mittel-stand” needs to globalize because there usually facing globalized compa-nies. But they have trouble doing that because of their capital and manage-ment capacity. If German companies do not go out to foreign markets like China, other companies will come in

and enter the German market. Many German companies have failed enter ing the Chinese market because they do not take a systematic approach on globali-zation. German companies often overe-stimate who they are. There is a certain level of arrogance. They are number one in Germany, but in ¡China, they are a small fi sh in a huge pond. They think that the Chinese have to love their pro-ducts because they are superior. But maybe the Chinese market is not ready for those superior products. So they have to downgrade a bit. Adapting to the local environment is very diffi cult.

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(4)

| Unternehmeredition M&A China/Deutschland

18

Lam: Besides from the search for good buys, partners and M&A service pro-viders – language and cultural diffe-rences may cause misunderstandings in negotiations. In addition, a lack of transparency in procedures for docu-mentation, taxation, approvals from local/national government authorities – depending on the size and scope of the prospective deals – can contribute to the challenges for German compa-nies entering the Chinese market.

Sittel: Inbound transactions volume is still relatively low. In 2012, these tran-sactions represented less than one third of all Sino-German deals. Most transactions are – for different reasons – still carried out as Joint Ventures. One good example is the recent Joint Venture between GETRAG and Dong-feng Motor Group. The two common-ly known challenges faced during in-bound M&A processes are protection of Intellectual Property and overco-ming language as well as cultural diffe-rences. Additionally, a German partner will have to accept that the selection of the potential partner/target is strongly influenced by the government. The-re is a tight pThe-re-selection done by the NDRC. Following an acquisition or a joint venture the operational manage-ment of the company in China repre-sents the main challenge. In the case of a joint venture, a Corporate Gover-nance arrangement needs to guarantee the desired level of influence for the German acquirer. Furthermore, the retention and guidance of an often highly “flexible” blue-collar workforce, is a major challenge.

What are the major challenges for Chinese companies entering the German market?

Mahnert-Lueg: We often meet Chinese companies who really want to invest in Germany but simply do not know how to do it. Many M&A brokers have trouble with Chinese investors. Ger-man Mittelstand companies who are looking for investors usually do not want private equity companies. They have heard that the Chinese strategic investors typically pay more money.

Sittel: Based on our transaction and consulting experience with Chinese investors, we have identified four main challenges pre- and post-acquisition: (i) The identification of suitable tar-gets is often demanding from far away. In many cases, the required analysis of the competitive environment and ongoing transactions is not sufficiently executed. (ii) Excellent contacts to management and shareholders are keys for the establishment of a direct contact between parties. Most foreign investors do not have the required network. (iii) Aside from performing a comprehensive due diligence on the target, political and public awareness has to be thoughtfully managed by the Chinese investor. (iv) The Post-Merger-Integration can be challenging as it is difficult to operatively manage the company from far away. Raising synergies, accessing new markets as well as sourcing opportunities need be secured.

Lam: Challenges often arise when pro-spective M&A deals involve sensitive businesses such as energy, specialist technology, patents, media and net-work security. Different standards regarding environmental protection, corporate governance and disclosure requirements can create challenges for Chinese companies entering the German market. In addition, Chinese

enterprises face various difficulties due to a dearth of sophisticated sup-port services on the mainland to cover sectors such as accounting, finance and law.

Challenges

of-ten arise when

prospective M&A

deals involve

sensitive

busi-nesses such as

energy, specialist

technology,

pat-ents, media and

network security.

SUSAN LAM

Director Germany & Central Europe, Hong Kong Trade Development Council (HKTDC)

(5)

Choon: Some of the major challenges faced are revolving around diffe-rent management cultures post ac-quisition as a lot of German targets are family-owned and the acquirer needs to take time to learn about the business environment including the management style of the target. Meanwhile, cross-border technolo-gical transfer remains sensitive and a subject that does not necessari-ly occur as planned if the Chinese companies simply wish to imitate the target and there is risk that the technology know-how of the target is

We often meet Chinese companies who

really want to invest in Germany but

simply do not know how to do it.

DANIEL MAHNERT-LUEG

Managing Director China, Westlake Partners

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(6)

| Unternehmeredition M&A China/Deutschland

20

not able to be fully integrated into the acquirer’s own operations.

What does the slowdown in China’s GDP growth mean for Chinese com-panies in M&A deals – acquirers as well as targets?

Sittel: In recent weeks, the sentiment on China has been hit hard by concerns about the unwinding of the U.S. mo-netary stimulus as well as signs that China‘s economy is slowing down faster than anticipated. Some market analysts are even foreseeing a secular end of the “China Story”. However, despite a dor-mant global M&A market, acquisitions of German targets by Chinese buyers have increased more than tenfold since 2010. This trend is unbroken and the cur-rent economic slowdown in China will not alter the global acquisition agenda of the Chinese government as defined in the current five-year plan. Generally, on a corporate level, M&A decisions are also influenced by temporary factors such as market sentiment, financial per-formance and financing availability. In Chinese companies though, these fac-tors are strongly “overlaid” by the cen-trally-planned economy. Unless China drops into an unlikely deep recession, we expect no significant consequence on the M&A activity.

Choon: Despite the softening of the Chi-nese economic growth, ChiChi-nese com-panies are still keen to acquire Euro-pean targets with good technological assets and reputable brand in order to overcome current technology know-how bottleneck. However, some of the potential acquirers may adopt a wait-and-see approach before undertaking “big-ticket” transactions. Though the slowdown in GDP growth had impact-ed most sectors of the Chinese econo-my, but we believe that there are still good opportunities of growth via M&A deals, which could improve competi-tiveness and establish better market footprints of the acquirers while the targets could leverage on a more so-lid platform for technology and know-ledge transfer.

Lam: The number of the Chinese main-land outbound deals fell in line with global economic uncertainties to 191 in 2012 from 206 in 2011. Deal values, however, registered 54% year-on-year growth to reach a record high of 65.2 billion USD. Many more deals are fore-cast in the pipeline and a strong growth trend is likely to continue leading up to another record year in 2013. It is, how-ever, interesting to note that the main-land M&As are likely to remain focused

However, despite

a dormant global

M&A market,

ac-quisitions of

Ger-man targets by

Chinese buyers

have increased

more than

ten-fold since 2010.

DR. THOMAS C. SITTEL Director, goetzpartners CORPORATE FINANCE GmbH

Despite the

sof-tening of the

Chi-nese economic

growth, Chinese

companies are still

keen to acquire

European targets

with good

techno-logical assets and

reputable brand in

order to overcome

current

technol-ogy know-how

bottleneck.

ENG CHOON

Managing Director, ZJ (Shang-hai) Advisory Co., Ltd.

(7)

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in line with sectors identifi ed as criti-cal to future growth by China’s new leadership. Examples of these sectors are those singled out in China’s 12th “fi ve-year plan”. And for M&A targets on the mainland related to industrial upgrades and modernization, China is likely to continue to welcome Ger-man investors as they are seen to have world-class operational, managerial and innovation expertise. Given the mainland’s continued efforts to foster consumption – retail and distribution businesses are expected to be among the potential targets for acquisition.

Mahnert-Lueg: The people are aware of what is happening in China. The economy is slowing down, but it does not have a huge impact on the daily li-ving. The Chinese are used to the Yin and Yang effect. They are neither opti-mists nor pessiopti-mists. That means that from their point of view everything has good and bad aspects at the same time. The slowdown is actually good for the Chinese economy, because the growth we saw over the last years was unhealthy. Cities were built up within a few years, just because local govern-ments wanted to fulfi ll the GDP target.

That does not add to the productivity and the quality of living. The slowdown gives China some kind of a reality check. A really big issue is that many companies have lived by growing. It was a messy growth. Their margins are relatively low, because they have not optimized their structure. If those companies stop growing, they have a lot of excess capacity. They are quite over-leveraged. A bad scenario can happen that many private enterprises need to shut down, because they were always competing on prize with very

little margins. Q

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