China Global M&A Push, 2005 ~ Nowadays

[cirr]

Richard Macauley
July 29, 2015

Chinese companies’ overseas shopping sprees have been well documented in recent years, after Beijing encouraged its own inefficient, bloated state-owned enterprises to “go out,” and acquire knowledge and expertise by gobbling up foreign enterprises.

But Japanese companies, not Chinese, have quietly been doing more overseas deals in the past decade. The news last week that Japan’s Nikkei paid $1.3 billion for the Financial Times was just the latest example of this trend. Japanese companies are embracing foreign deals for growth, as a way to hedge against an aging population and a stagnant economy at home.

According to Dealogic data, between 2005 and 2015 year-to-date, companies in Japan and China spent $590.3 billion and $568 billion, respectively, either merging with or acquiring (i.e. M&A) international companies. These figures include Hong Kong companies in the China category — if they were stripped out, China’s overseas acquisitions would fall even farther short of Japan’s, thanks to huge deals like Hutchison Whampoa’s $15.4 billion deal for O2.

Looking at the same data cumulatively shows the pace of investment from both countries is well matched, but Japan has pulled slightly ahead every year since 2006.

Below are two maps pointing to the whereabouts of the 10 top countries for China and Japan’s M&A activity, and they show some distinct differences in the countries’ outbound investment attack. Japanese companies, for instance, spent $258.1 billion merging with or acquiring US companies in the period, 43.7% of all such expenditure over the 10-plus years:

Whereas the biggest target country for Chinese and Hong Kong companies was the UK. Britain received $82.9 billion in the period, or 14.6% of China’s total outbound investment:

It is worth mentioning that although no African countries appear in the top 10 destinations for merger and acquisition deals, there is plenty of extra cash flowing from China into the continent. Ethiopia has received $17 billion in Financing (note: not M&A) in recent years from China, and China’s involvement in infrastructure investment across Africa has been well-documented.

Given the different challenges both China and Japan face as nations, companies from both countries have somewhat different goals when they do overseas deals.

• China, for instance, is set on building a new global infrastructure that puts Chinese companies at the center of the world. The country also is concerned with securing enough natural resources to sustain its impressive economic growth and maintain manufacturing jobs.

• Japanese companies are positioning to cope with a rapidly aging society and smaller workforce, albeit one that is already rich enough to represent a strong consumer marketplace. (Aging population will be an issue for China down the road, though).

• Chinese companies, therefore, are more likely to target heavy industry when they go overseas deals:

• While Japanese companies have focused on the healthcare and consumer sectors:

So far 2015 is shaping up to be a bumper year for overseas acquisitions. By July 28 this year, companies in China (including Hong Kong) and Japan had already spent over $60 billion each—that’s more than was spent in many full years in the 2005-2014 period.

**************************************************************

Lenovo buys IBM's server business in China's biggest IT acquisition
BEIJING Thu Jan 23, 2014 4:19am EST

Boxes containing Lenovo desktop computers are seen in an office in Kiev March 12, 2012.
Credit: Reuters/Gleb Garanich

BEIJING (Reuters) - Lenovo Group Ltd, the world's largest PC maker, agreed to buy IBM Corp's low-end server business in a long-awaited deal valued at about $2.3 billion, the biggest-ever tech acquisition by a Chinese company.

Lenovo will pay $2.07 billion in cash and the rest with stock of the Beijing-based PC maker, the company said in a statement to the Hong Kong exchange on Thursday.

The deal surpasses Baidu Inc's acquisition of 91 Wireless from NetDragon Websoft Inc for $1.85 billion last year, according to Thomson Reuters data, and underscores the growing clout of the country's technology firms as they look to expand overseas.

The acquisition will allow Lenovo to diversify revenue away from the shrinking PC business and remodel itself as a growing force in mobile devices and data storage servers. Analysts said Lenovo will likely find it easier than International Business Machines (IBM) to sell the x86 servers to Chinese companies as Beijing tries to localize its IT purchases in the wake of revelations about U.S. surveillance.

The sale allows IBM to dump its low-margin x86 business - which sells less powerful and slower servers than the company's higher-margin offerings - and focus on the firm's decade-long shift to more profitable software and services. The unit had reported seven straight quarters of declining revenue.

"What the business is worth to IBM is no longer relevant. The only thing that matters is what it's worth to Lenovo," said Alberto Moel, a Hong Kong-based analyst at Sanford C. Bernstein. "If Lenovo can improve the margins... that could offset any continued revenue shrinkage."

Lenovo's purchase of IBM's ThinkPad PC business in 2005 for $1.75 billion became the springboard for its leap to the top of global PC maker rankings. The market is betting Lenovo will enjoy similar success with its latest acquisition, which is partly reflected in a 9.44 percent rise in its shares this year.

Credit Suisse and Goldman Sachs advised Lenovo, PC maker said in its statement.

HIGHER VALUATIONS

Talks between IBM and Lenovo fell apart last year due to differences on pricing, with media reports at the time suggesting IBM wanted as much as $6 billion for the unit.

Analysts said the sale may have been accelerated by IBM's China woes and ongoing weakness in hardware sales, after the world's biggest technology services company reported a 23 percent drop in fourth-quarter revenue from China on Tuesday.

Revenue from its hardware business, including servers, fell for the ninth consecutive quarter as more companies switched to the cloud from traditional infrastructure.

IBM's server business was the world's second-largest, with a 22.9 percent share of the $12.3 billion market in the third quarter of 2013, according to technology research firm Gartner.

Hewlett-Packard Co is the biggest player, while Lenovo does not appear in the top five.

"The acquisition presents a unique opportunity for the company to gain immediate scale and credibility in this market," Lenovo said on Thursday.

The x86 unit has annual revenues of roughly $4 billion, analysts estimate.

(Reporting by Paul Carsten; Editing by Denny Thomas, Stephen Coates and Ryan Woo)

Lenovo buys IBM's server business in China's biggest IT acquisition| Reuters

 

[shuttler]

This is the PC scenario
Lenovo climbing up all the ranks to become no 1 worldwide!

Credit: ITCandor - Martin Hingley's blog

Let's see how this acquisition goes

In China Lenovo has Inspur to challenge:

Credit：server.51cto.com

天梭 Tiansuo TS-KI server
Credit：server.zol.com.cn

Here a vid：
浪潮

also on here：



Related news：
天梭K1：中国主机产业的第一面红旗-搜狐滚动

 

[TaiShang]

Mergers and acquisitions expanding across the nation's technology sector

This year has witnessed a sharp rise in M&A activities in China's technology sector.

Data from Dealogic, a global market observer, show that acquisitions led by Chinese technology firms reached $25.6 billion by last Tuesday, compared with $9.3 billion during the same period last year, and $17.66 billion for 2013. Year-to-date deal volume reached a record high of 275 deals, compared with 218 for 2013.

While overall Chinese acquisitions have reached a record $162.5 billion so far this year, up 27 percent year-on-year, the technology sector saw 175.72 percent growth in value, making it the third most active sector in M&A activities after resource and finance. The deal value of outbound technology M&A surged 175.77 percent year-to-date.

The main reasons behind the increase are rising demand for new technology and people of know-how in China, said Kelly Gregory, partner at Clifford Chance Shanghai, who advised Dongfeng Motor Group's 1.6 billion euro ($2.1 billion) acquisition of a strategic stake in PSA Peugeot Citroen, Europe's second-largest carmaker, in February.

"Competition is intense across all segments in the technology market, particularly among the online players. They are under a lot of pressure to have the latest technologies," she said.

Acquisitions make sure big companies "stay ahead of the curve", she said.

Increasingly, Chinese enterprises are looking outside the country for more choices.

"In the past several years, Chinese companies have outgrown US comparables by market cap. As they scale out and domestic competition heats up, going outbound is certainly the way they are going for technology, products and access to new markets," said Winston Cheng, head of Asia TMT investment banking at Bank of America Merrill Lynch, who assisted IBM selling its server business to Lenovo Group in February.

"Some also go abroad following their clients' footprints. They need to have presence where their clients are." He said that US players used to feel they were the best bids for global assets. "But now they are starting to worry that the Chinese are becoming equally strong. Today people are increasingly looking at taking Chinese money and then getting a unique business model or access to the China marketplace."

Regulatory change is certainly in favor of the supply-demand dynamic. A set of new rules issued by the National Development and Reform Commission, including the Administrative Measures on Approval and Filing of Outbound Investment Projects, took effect this May.

According to the new policies, other than investments in sensitive countries and industries, outbound investments of less than $1 billion no longer require government approval. Instead, only a filing with NDRC or its provincial branches is required.

"With the new approach, uncertainty and the time required for NDRC approval are expected to be significantly reduced, especially for deals under $1 billion," said Gregory, adding that most of the outbound investment deals by Chinese enterprises fall into this category.

"In several outbound investment deals we have been working on, the Chinese investors, by taking advantage of the new measures, were able to compromise in this respect in exchange for concessions from the sellers in other respects."

Chinese technological companies also have been eyeing alliances within the sector. In April, Alibaba Group Holding Ltd announced its plan to acquire an 18.5 percent stake of Youku Tudou Inc, the Chinese version of YouTube. At the end of May, the e-commerce company also snapped up a share of Singapore Post Ltd.

"The current wave of M&A activities could potentially encourage strategic business alliances among Chinese technological players to emerge. Chinese companies are also riding this wave to transform themselves over time from domestic leaders to global champions," said Christopher Chua, head of China M&A with Credit Suisse.

Another catalyst fueling rising M&A deals this year is the buoyant capital market, said Merrill Lynch's Cheng, who also advised JD.com's transaction of $3.45 billion shares to Tencent Group in March. "Small companies are increasingly receptive to investment from sector leaders. There is a point where they feel that, valuation-wise, it makes sense to sell."

Globally, the technology sector, especially the dotcom companies, has seen a boom in the past 12 months. ChiNext Index, tracking China's Nasdaq-style board of growth enterprises, surged to 1,558 in February, the highest level in a decade. It now stands at above the 1,400 level.

"The boom in the technology sector, both in China and the US, is very important in the success and future of technology M&A," said Brett McGonegal, CEO of Reorient Group, a Hong Kong-headquartered boutique house that served as financial adviser in Alibaba's acquisition of ChinaVision Media Group Ltd in March.

 

[TaiShang]

Chinese Steel Firm Acquires Full Ownership of Sierra Leone Mine
2015-04-22 07:52:44 CRIENGLISH.com Web Editor: Hai Peng

A storage room of Shandong Iron and Steel Group. [Photo: agencies]

A Chinese state-owned iron and steel company has acquired the full ownership of a mining project in Sierra Leone.

Shandong Iron and Steel Group say it has purchased the remaining 75-percent stake in the Tonkolili Iron Ore mine.

The price-tag for the acquisition has not been made public.

However, the company's previous purchase of the first 25 percent of the mine cost it some 1.5-billion US dollars back in 2011.

The mine has been mostly idle since November because of a debt default.

 

[Raphael]

Acquisition of Novo Banco may make Portugal one of China’s main investment recipients | Macauhub English

Chinese investors are best placed to buy Portugal’s Novo Banco, potentially China’s largest ever deal in Portugal, a country that would be put on a par with the UK, which is currently China’s largest investment destination in Europe.

The initial proposals from Anbang Insurance and Fosun International are expected to be around 4 billion euros, well above what is offered by the three other competitors – the Santander group and US investment funds Apollo and Cerberus Capital Management – according to the Portuguese press.

The Portuguese government and the Bank of Portugal have shown themselves to be more favourable to a solution involving minimal branch closures and possible elimination of jobs, which gives the outsiders an advantage over Santander, which already has a strong presence in retail banking in Portugal.

As for the competitors in the banking sector they seem more concerned that the proposals be high in value as they will bear the losses the sale may incur for banking resolution fund, which applied 4.9 billion euros in the bank created with the “healthy” assets of the bankrupt Banco Espírito Santo.

“What matters is that [the buyer] is an entity that the authorities can attest to. If it is Chinese, terrific, provided they pay well and the “aim is to maximise the price,” the chairman of Millennium bcp, Nuno Amado said last week. BCP is currently the largest Portuguese private bank.

If the deal goes ahead, according to weekly newspaper Sol, it will give Chinese investors 15 percent of the Portuguese banking sector, in addition to up to 30 percent of the insurance sector (through Fidelidade, which was acquired by Fosun), and 45 percent of the energy sector (through China Three Gorges, the largest shareholder of EDP – Energias de Portugal).

The deal may be the largest ever involving Chinese investors in Portugal, beating the privatisation of 21.35 percent in power company EDP, in December 2011, whereby China Three Gorges paid 2.69 billion euros, pledging also to invest 2 billion euros in EDP’s renewable energy projects by 2015.

These deals brought to Portugal some of the biggest names in the Chinese business community, with strong links to Beijing.

Guo Guangchang, of Fosun International, has one of the largest fortunes in China and is a member of the Advisory Board of the Chinese Communist Party (CCP), with large investments abroad, and he should soon become a shareholder of Cirque du Soleil, and have prominent positions in insurance and health in Portugal.

Wu Xiaohui, of Anbang Insurance, is renowned for buying the iconic US hotel Waldorf Astoria in 2014, and may now enter the financial sector in Portugal and other countries where the bank is represented.

Other names that begin to be familiar in Portugal are Lu Chun, of China Three Gorges, and Liu Zhenya, of China State Grid, the main shareholder of national grid company REN, and member of the Central Committee of the CPC.

Speaking to the Sol newspaper, Albino Oliveira, an analyst at Fincor said that investment in Portugal demonstrates “confidence in the Portuguese economy,” and a strong availability of liquidity.

The purchase of Novo Banco would make Portugal surpass Germany and France among the main Chinese investment destinations since 2000, based on a recent comparative study from the Rhodium consultancy.

The 4 billion-euro price tag would be added to the 6.7 billion euros invested so far, totalling 10.7 billion, a total figure surpassed only by the United Kingdom – US$16 billion.

The Heritage Foundation recently calculated Chinese investments in the UK at 13.8 billion and investments in Portugal at 5 billion, but some analysts have estimated the capital invested in Portuguese assets at over 10 billion.

 

[TaiShang]

China’s GSR Ventures Plans $5 Billion Fund for Overseas Tech Acquisitions


(WSJ) The quest by Chinese firms to acquire global technology is about to get $5 billion boost.
Chinese venture-capital firm GSR Ventures is raising a $5 billion fund to buy overseas assets, according to people familiar with the situation. The fund, which is expected to be announced Monday, will target deals to acquire companies in technology, Internet and biotechnology industries globally where the Chinese market is key to growth prospects, they said.

GSR Ventures, a firm set up by Chinese tech entrepreneurs in 2004, raised its profile outside the country in March when it joined U.S. venture-capital firm Oak Investment Partners in the purchase of 80% of Philips NV’s lighting components and automotive-lighting operations in a $2.8 billion deal.

GSR Ventures’ latest fundraising comes as Chinese firms, encouraged by policy makers in Beijing, are pushing abroad to snap up technologies that China imports. Many of these, such as semiconductors and advanced automotive technology, are markets in which China is the world’s largest consumer of the end products, for example mobile phones and cars.

In the most ambitious of those efforts so far, China’s state-owned Tsinghua Unigroup Ltd. made a $23 billion approach to chip maker Micron Technology Inc. this month. Tsinghua Unigroup, an arm of the country’s top science university, faces hurdles in bringing Micron to the negotiating table given the potential scrutiny such a deal would bring from the U.S. government.

U.S. and European firms are also increasingly looking for partners that can help their business in China, where sales have suffered as the Chinese government favors local firms through government procurement and discouraging the purchase of foreign equipment. The urgency to build Chinese national champions in many tech-related sectors was driven by revelations that the U.S. government collected data and other information at home and abroad, in some cases using infrastructure belonging to U.S. companies.

As a result, many U.S. firms are doing deals and sharing technology with Chinese partners, hoping to maintain sales in the Chinese market. For example, Hewlett-Packard Co. sold 51% of its China networking-gear business to Tsinghua Unigroup for $2.3 billion in May. H-P hopes that the sale of a majority stake will mean that operation, known as H3C, will be viewed as a domestic company within China.

GSR Ventures’ new $5 billion fund could be an attractive partner in such deals given its team’s experience navigating the local Chinese tech scene. Companies often prefer to partner with private-equity or venture-capital investors who have more international experience and are more financially savvy than most Chinese companies.

GSR Ventures made its name by investing in some of China’s hottest startups, including ride-hailing company Didi Kuaidi Joint Co. and food delivery firm Ele.me. It was an early investor in Didi, which is now a $15 billion company. GSR Ventures currently manages over $1 billion in assets and has also made investments in semiconductor companies, an electric vehicle battery maker and a solar cell manufacturer. GSR Ventures operates offices in Beijing, Hong Kong and Silicon Valley.

Source: Wall Street Journal by Rick Carew

 

[TaiShang]

• China, for instance, is set on building a new global infrastructure that puts Chinese companies at the center of the world. The country also is concerned with securing enough natural resources to sustain its impressive economic growth and maintain manufacturing jobs.

• Japanese companies are positioning to cope with a rapidly aging society and smaller workforce, albeit one that is already rich enough to represent a strong consumer marketplace. (Aging population will be an issue for China down the road, though).

• Chinese companies, therefore, are more likely to target heavy industry when they go overseas deals:

• While Japanese companies have focused on the healthcare and consumer sectors:

Interesting comparison which also tells a lot about the two nations' foreign diplomacy. Japan's M&A seems to be more specific whereas China's more broad-based.

China is more focused on heavy industry whereas Japan in high-tech and services.

China probably has a more room for M&A activity given that it has just launched the AIIB that targets the entire Asia-Eurasia. Heavy industries are likely to lead the M&A in a foreseeable future.

 

[TheTruth]

In the future, China and Japan may have to join forces to defend their overseas assets

 

[cnleio]

In the future, China and Japan may have to join forces to defend their overseas assets

Possible ... just after Japan Abe government quit.

 

[Shotgunner51]

Interesting comparison which also tells a lot about the two nations' foreign diplomacy. Japan's M&A seems to be more specific whereas China's more broad-based.

China is more focused on heavy industry whereas Japan in high-tech and services.

China probably has a more room for M&A activity given that it has just launched the AIIB that targets the entire Asia-Eurasia. Heavy industries are likely to lead the M&A in a foreseeable future.

Yes bro indeed it is interesting!

Quick summary on M&A (merger, acquisition, startups)

• Globally speaking Japan mostly buying in US, while China (& Hong Kong) mostly buying UK companies as well as other Euro zone companies in light of a weak Euro. Between 2000 and 2014, Chinese companies spent € 46 billion on 1,047 direct investments in the 28 EU countries, with most of the buying coming in the wake of the 2008-09 global financial crisis.

• Sector-wise, Japanese like to buy pharmaceutical, healthcare & consumer goods companies, while China (& Hong Kong) prefer buying heavy industry and infrastructure. Hutchison Whampoa now owns a heavy stake of UK's telecom, seaport, energy, and other public utilities.

Other than M&A, fueled by ever-rising trade surpluses (conservative estimate is $600 billion just for 2015) China will continue to invest across the globe in the coming years. As per the Financial Times (which recently came under Japan's Nikkei), China will become the world’s biggest cross-border investor by the end of this decade, with global offshore assets tripling from $6.4 trillion presently to $18 trillion by 2020, according to new research.

Greater China region combined (NIIP $3.7+ trillion) now is already world's top creditor. Accordingly to the forecast, China mainland alone (excluding Hong Kong, Taiwan & Macau) will replace Japan as world's top creditor latest by 2020.

China trade surplus reaches $137bn (for 2nd Quarter of 2015)
China to become world’s biggest overseas investor by 2020 - FT

 

[opruh]

If Japan wants to survived, they need to stick with China.

 

[Shotgunner51]

If Japan wants to survived, they need to stick with China.

Contemporary Japan has been a great country with all its brilliant achievements in tech, science and commerce. China is a continental sized economy seeking resurgence to a rightful position. The two should get over with historical differences, integrate more and jointly contribute to the betterment of both countries as well as the world.

 

[Aepsilons]

Contemporary Japan has been a great country with all its brilliant achievements in tech, science and commerce. China is a continental sized economy seeking resurgence to a rightful position. The two should get over with historical differences, integrate more and jointly contribute to the betterment of both countries as well as the world.

Agreed bro, and very well said. Always so diplomatic ! I should also like to mention that while Japan will continue to increase its investments and involvement in China (PRC) from the grass roots level to the national polity level, the Japanese Government works through a policy of Omnidirectionality.

You may already know that tho Japan is partial to certain regional blocks when it comes to geostrategic issues, when it comes to economic trade , cultural trade, Japan is impartial and is open to all. We have to understand that in regards to economics, Japan and China are integrating (gradually) and perhaps may serve as a conduit to improve political and security understanding.

Both countries have differences, but like any relationship in the organic level, differences can be worked out.

 

[Shotgunner51]

Agreed bro, and very well said. Always so diplomatic ! I should also like to mention that while Japan will continue to increase its investments and involvement in China (PRC) from the grass roots level to the national polity level, the Japanese Government works through a policy of Omnidirectionality.

You may already know that tho Japan is partial to certain regional blocks when it comes to geostrategic issues, when it comes to economic trade , cultural trade, Japan is impartial and is open to all. We have to understand that in regards to economics, Japan and China are integrating (gradually) and perhaps may serve as a conduit to improve political and security understanding.

Both countries have differences, but like any relationship in the organic level, differences can be worked out.

Bro like I said in the other thread I wasn't meant to be diplomatic but those were all real thinking, word for word.

Throughout the past few millennium civilizations always have their ups and downs, same applies to Yamato-volk and the Middle Kingdom. China's gradual resurgence to a rightful position is very normal, Japan shouldn't feel threatened. In fact due to the size of China, its gradual resurgence offers more positive opportunities to Japan in economic matters, even security if I may add.

China is far from perfect in many aspects, we know and working on it progressively. Let's continue to deepen business integration, deepen people-to-people friendship, take steps to move towards political concensus, and ultimate a socio-economic union!

 

[Shotgunner51]

News on M&A

China's Bohai bids $2.6 billion for aircraft leasing firm Avolon