Post on 02-Jul-2015
description
Dissecting the Current Merger Wave in
China and the Implications for EU
Assistant Professor of Finance
Cheung Kong Graduate School of Business
Xiaoyang Li
Sixth EU Asia Top Economist Round Table
EU China Economic and Finance Forum
Beijing, 17 November 2014
2
Booming Domestic M&As
3
Burgeoning Cross Border Acquisitions
4
Regional Decomposition (2000-2014)
5
Mega Mergers by Chinese Firms
6
New Features of Current Merger Wave
1) BAT’s (Baidu, Alibaba, and Tencent) expansion through acquisitions
2) Hybrid ownership reforms offer private enterprises with golden
opportunities
3) More acquirers are private rather than state-owned enterprises
4) More and more firms seek targets overseas
5) Most targets are in different industries from acquirers
6) Acquisition becomes public-listed companies’ key value enhancing tool and
becomes the main exit channel for VC/PE
7) Many buyout funds are assisting
▪ Investment banks/Financial advisors
▪ PE
▪ PE+Listed Companies
- Combining primary and secondary markets
7
Forces behind Recent Merger Waves
Merger & Acquisition
National Industrial
and Financial Policies
RMB and Capital Market
Globalization
Technology and
Consumption Upgrading
Banks, PE, and Buyout
Funds
MBO and Hybrid
Ownership Reforms
8
Macro Policies
• In 2008, the State Council’s Nine Measures: #5: Create new financing channels
through M&A loans, REITs, Private Equity, and regulated informal lending
• In December 2008, CBRC’s Guidelines on Commercial Banks’ M&A Loans
• In September 2010, the State Council’s Opinions on Promoting Enterprise’s M&As
• CSRC promulgates “Provisions on the Material Asset Reorganization and Ancillary
Financing of Listed Companies”
• In January 2013, 12 ministries promulgated “Guidelines on Promoting Important
Sectors’ M&As” set priorities on Steel, Cement, Auto, Ship, Aluminum, Rare Earth,
Information, Pharmaceutical, and Agriculture sectors
• 07/14,People’s Bank of China loosens restrictions on individual/firm investing
abroad
National Industrial and
Financial Policies
9
Reviving State-Owned Sector
Year 2003 2004 2005 2006 2007 2008 2009 2010
Capital
%50.1% 48.8% 48.9% 48.5% 52.0% 53.3% 51.6% 41.9%
Output
%37.5% 35.2% 33.3% 31.2% 29.5% 28.4% 26.7% 26.6%
21% 21%28%
35%
93% 95%
Steel Automobile Cement Electrolyti Aluminum Glass Solar Battery
• Capital-output efficiency
• Over capacity in some sectors
10
SinoPec’s Ownership Reform
MBO and Hybrid
Ownership Reforms
• Who are behind the curtain?
1. 三洲隆微实业
2. BoHai industrial private equity
3. Pacific Insurance
4. CICC
5. HOPU (厚朴投资)
6. Haier
7. ICBC
8. Huaxia mutual fund
9. Huaxia mutual fund
10. Harvest mutual fund
11. Harvest mutual fund
12. RRJ Capital
13.国家开发投资公司
14. Fosun (复星)
15. A PE
16. CICC
17. Tencent
18. A life insurance company
19. CICC
20. 新奥控股
21. Cinda AMC (信达资产管理)
22. Huiyuan
23. China Life
24. China Tobacco
25. China Postal Insurance
11
VC/PE Investments vs. IPOBanks, PE, and Buyout
Funds
12
VC/PE Investments vs. IPOBanks, PE, and Buyout
Funds
13
Hony Capital Eats PizzaBanks, PE, and Buyout
Funds
14
Deal SynopsisBanks, PE, and Buyout
Funds
• July, Hony Capital (investment arm of Lenovo) announced to
buy Pizza Express, for £900 million (¥9.55 billion)
– Largest acquisition in Europe in restaurant industry
– Highly levered buyout (LBO) with about £200 million rated below
investment grade (by Moody’s)
• Pizza Express was founded in London in 1965, famous for
Italian Pizzas
• 22 stores in Greater China (1 in Beijing, 9 in Shanghai, 12 in
Hong Kong)
• Hony capital is also very active in SOE privatization
15
Bright Food Acquires Weetabix
• Bright Food group, a state-owned conglomerate of
food/liquor/supermarkets, one of Shanghai’s chosen champion
• Has failed to acquire United Biscuits, Yoplait before
• Acquired Weetabix in 2012 from Lion capital
– £ 1.2 billion using bank loans, bridge loans, bonds
16
Another PE DealBanks, PE, and Buyout
Funds
• April, 2012, Wuhan WuTong GuiGuTianTang used €32.45 million (~¥284 million) acquire Steyr Motors in Austria
• November 5, 2012, Boying investment (博盈投资 000760.SZ) announced to conduct a private-placement of 314 million shares to 6 institutions at ¥4.77 per share to raise ¥1.5 billion – ¥ 500 million to buy WuTong GuiGuTianTang’s 100% shares; ¥ 300
million to invest more in Steyr Motors; ¥ 300 million for R&D; rest for liquid capital
▪ 5 PEs participated, including GuiGuTianTang
17
Common Traits
• Chinese companies seek brand and technology to upgrade
consumer discretionary goods and machinery manufacturing
• EU targets tend to exhibit stagnant growth and high leverage
• China buyers offer capital and market growth prospect
• State champions, private equities, and private enterprises are all
active
18
Smile Curve
18 DownstreamUpstream
Value
Manufacture
China Market
Resources &
Technology
Branding &
Channels
Consolidation
19
Conclusions
• Forces driving China’s merger waves are brewing
▪ Government deregulation
▪ Technology disruption
▪ Financial innovation
▪ Economy globalization
▪ State Privatization
▪ PE/Buyout funds
• Mergers and acquisitions are invigorating the Chinese economy!
• Two-way street for China-EU M&As!
Thank you!
xyli@ckgsb.edu.cn