New Direction for Chinese M&A: Brand Names?

Could China’s taste for acquisitions abroad soon shift from iron ore and autos to handbags and Hollywood? That is what speakers discussing the future of China’s outbound M&A at the Journal’s China Financial Markets conference in Beijing believe is likely. But they also think there will be hiccups along the way, similar to the experience of Japanese companies during their outbound splurge in the country’s bubble years. In recent years the Chinese have largely concentrated on acquisitions in energy, mining and cars led by state-owned players. But now more closely held businesses are out shopping for brand-name companies in the U.S. and Europe and looking to sell their products in China’s fast-growing market said Wang Ran, chief executive of boutique investment bank China eCapital. Bloomberg News Will handbags be the new iron ore for China? “We’re beginning to see a second wave of M&A initiatives diversifying away from those heavy industries,” he said Tuesday in Beijing. In the year to date, Chinese outbound M&A is running at a record vale of $47.8 billion across 274 deals, according to data providers. Wang said also noted Chinese film companies are interested in acquiring stakes in Hollywood film studios to gain access to their libraries. Like what happened when Japanese firms sought trophy assets in the late 1980s and early 1990s, many deals may run into trouble as the new owners try to manage their purchases. Matsushita Electric Industrial had a tense, combative relationship with the management of Hollywood movie studio MCA and eventually sold its 80% stake in 1995. Wu Yibing, president CITIC Private Equity Funds Management Co., said the biggest struggle Chinese companies have making acquisitions is integrating the company afterwards. If Chinese managers were to ask themselves if they could manage foreign companies, “I would say 90% of the rational Chinese buyers would answer no,” said Wu, adding resource deals have predominated to date because they are simpler to manage. For the last two years, Chinese companies have mostly coveted overseas oil and gas assets, according to Dealogic. Some of the well-known obstacles Chinese companies face are linguistic, cultural and regulatory, said Fred Hu, chairman of Primavera Capital Corp. Hu’s advice to Chinese companies is to do their homework thoroughly before pouncing, and also communicate extensively with regulators and the public to ease fears of what he called the “800-pound gorilla that’s called China.”