Overall trend. The mergers and acquisitions Lei Jiang LLC handled in 2016 were mostly global in nature, involving Asia Pacific companies as buyers and American companies as sellers. The dominant buyers were again Chinese companies. But we saw different Chinese buyers, including Chinese private equity firms, publicly listed companies, and even private owned companies. The traditional outbound M&A was dominated by Chinese state-owned enterprises. The new trend signaled broader bases, bigger appetites, and increased capacity for Chinese companies to acquire U.S. companies.
Although this new array of buyers had a very short track record of cross-regional M&A, they have showed some experience and are comfortable in the deal. From our dealing with these customers, we have discerned factors behind this buying spree. They are 1) to boost the growth rate of the company, 2) lack of domestic targets for acquisitions, and 3) ease of the restrictions on finance.
Implications for U.S. companies. U.S. companies should consider Chinese companies as legitimate partners and buyers if they want to fully utilize the value. First, Chinese companies normally pay higher premium in acquiring U.S. companies. They take into consideration the long term development and potentials. Second, consistent with Chinese culture, Chinese buyers place high value on the relationship with the management before, during and after the transaction. Moreover, in the M&A we handled in 2016, all Chinese buyers retained the management team and gave generous compensations to the U.S. teams. Finally, according to Forbes, by the end of August 2016, China was so far the top acquirer of foreign companies. If the trend continued to the end of year, China would unseat the USA for the first time since 2006. Thus, U.S. companies simply cannot afford to ignore this group of acquirers.
Implications for Chinese/Asia Pacific companies. As mentioned, Chinese companies typically adopt a longer-time investment evaluation, causing them to pay a relatively higher premium. Moreover, paying premium to retain the target’s management team shows that Chinese companies are not familiar with the dynamics of the overseas market and are not capable of running the target initially. Still, cross-regional M&A can be a value enhancing strategy for Chinese companies. If it fits their long-term strategies, in the long run these companies will gain a competitive advantage in the global market.
Lei Jiang Law Firm has successfully concluded several M&A deals in 2016. Some are still in the process. We are proud to provide top-notch M&A services to our clients. Our team is skilled in cross-regional M&A. We understand the cultural difference, language nuance, and different regulatory requirements. We are here to make it happen.