Without a doubt, outbound M&A deals of Chinese investors acquiring businesses in Europe and the U.S. are a major topic these days. Recent numbers show, that 2014 is the first year, in which outbound overseas investments surpass the value of inbound investments into China. According to studies of Harvard Business Review, more than 70% of these acquisitions fail for a number of reasons (some of them, especially those before and during the acquisition process, I will explore in my next publication).
For today, I would like to look at some (successful) case studies of German companies that have been acquired by Chinese investors. I will look across several dimensions, such as the influence of the new Chinese owner, advantages or potential synergies for both parties, and finally examine the know-how transfer and potential conflicts arising from it.
PFAFF Industriesysteme und Maschinen AG
Pfaff Industriesysteme und Maschinen AG is a manufacturer of sewing and sealing machines that was founded in Kaiserslautern, Germany in 1862. Pfaff’s first sewing machine was handmade, and designed to sew leather in the manufacture of shoes. The group now has 300 employees and an annual revenue of EUR 30M. In 2009, a private investor bought Pfaff’s assets after it came out of bankruptcy. However in 2012, cashflow was critically low prompting the search for a new, strategic investor with prior experience in Europe. Negotiations were held with several investors, and Chinese Shanggong group (SGSB Co. Ltd.) successfully closed the deal in 2013.
The Chinese investor kept the entire management team onboard and supported the implementation of the restructuring program that was designed before the take-over was concluded.
Benefits for Pfaff stem from being part of a large, international group with relevant industry expertise. Cost saving potentials arise from purchasing and developing new markets and sales channels, especially in Asia.
On the R&D and intellectual capital side, Pfaff does not run into any conflicts as Shanggong group does not produce any sewing or sealing machines in China. In fact, Pfaff recently opened its own production company for low-cost products. The high-end manufacturing, however, remains in Germany.
PUTZMEISTER Concrete Pumps GmbH
Putzmeister develops, produces and sells concrete pumps and is the global market leader in this segment. It was founded in 1958 in Aichtal, Germany and had 3,000 employees and an annual revenue of EUR 627M in 2013.
As a consequence of the financial crisis in 2008-2010, Putzmeister’s production capacity was much underutilized and the search for new areas of growth was initiated. Many companies in similar situation in this industry segment merged with Chinese players. Putzmeister’s acquisition by Sany Heavy Industry, was one of the first of such cases.
After the merger, both companies kept their existing brands and Putzmeister remained largely independent. Sany’s brand is used inside China, whereas Putzmeister’s brand serves the markets outside of China. There is no direct involvement of the Chinese parent company in the day-to-day business and the management team is not integrated. However, annual planning and long-term strategy are aligned with Sany, who also have a seat at the supervisory board of Putzmeister.
Through the merger, both parties have established mutually strong positions that benefit each other. Both companies collaborate on selected projects that should result in future synergies, e.g. bundling international purchasing.
The issue of IP or know-how drainage doesn’t seem to be a major topic, with only few, selected joint initiatives between Sany and Putzmeister.
AWECO Appliance Systems GmbH
Aweco was founded in 1960 in Neukirch am Bodensee, Germany. It produces components for home appliances, e.g. dish washers, washing machines and coffee machines for OEMs. Aweco’s revenue in 2013 was EUR 100M with 950 employees.
The first contact between Aweco and Sanhua was established in 2011, when Aweco suggested an asset deal to Sanhua for one of its product lines that was in direct competition. During the negotiations for this deal, both parties signed a Letter of Intent for Sanhua to investigate further investments, including the entire acquisition of Aweco. In late 2011, Sanhua started the negotiation process for the full take-over and after 9 months of talks and due diligence concluded the deal. As of Feb 2013, Zhejiang Sanhua Ltd. owns 100% of the shares of Aweco group with company locations in Germany, Poland, Austria and China.
Aweco’s CEO and CFO in Germany as well as the management team of Aweco’s China unit were replaced by executives from Sanhua group. In most other areas, Sanhua aimed to retain Aweco employees in key positions, leveraging their expertise and experience in stabilizing and growing the business. Overtime, Aweco became fully integrated into Sanhua group, with a good saturation of former Aweco employees throughout the company.
Sanhua invested in the group to strengthen its home appliance business and to open doors in other European countries. Sanhua’s products are now sold throughout Europe via Aweco’s sales channels. Similarly, Aweco employees are working on special pumps for Sanhua’s automotive business. Also other departments of the new group work closely together, i.e. in the area of purchasing or automation. Sanhua’s inhouse engineering team built a fully automated production plant using Aweco’s know-how at their site in Wuhu, China.
Sanhua’s global growth strategy offers overall new perspectives, both for Aweco’s business and for the development of its employees.
On the R&D front, Aweco also benefits from its parent company. It regularly uses facilities and expertise at Sanhua’s 200-people strong R&D center in Hangzhou, China. In the past, such development work had to be paid for and conducted externally.