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Tuesday, September 19, 2017

M&As in the Chinese Market

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These are excerpts from a panel discussion on “Mergers & Acquisitions: Generous returns from the Chinese Market” during CEIBS 3rd Europe Forum 2017 in Munich on September 13.

Case 1: Sany & Putzmeister
Sany was the first prominent case of a Chinese company taking over a
famous German company, Putzmeister, in 2012

Deng Haijun, Managing Director, Sany Europe GmbH:

“Sany was established in 1989. Its main business is industrial machinery and equipment. It is one of the largest manufacturers and our competitors include companies such as Caterpillar.

We are the leaders in the global market for earth and road equipment, and heavy machinery. We started in concrete machinery and equipment in 1993, and now we have seven facilities in China. We also have production facilities and R&D centres in Germany, Brazil, USA, and India. We provide services in 126 different countries, and we have established service offices in different parts of the world.

In 2012, we acquired Putzmeister – or you can call it the ‘big elephant’ – a concrete machinery manufacturer in Germany. After this acquisition, Sany became absolutely number one in the world in concrete machinery manufacturing.

Let me share some numbers with you:-

1. In 2012 when we acquired Putzmeister, sales were about 550 million euros. Last year in 2016, sales were 720 million euros. So sales increased by 14% – a very stable gross, and I expect a future gross this year. Profitability is also going up steadily.

2. After we acquired Putzmeister, the company maintained 40% to even 50% of global market share in concrete machinery though we have around 10 competitors out there.

3. After the deal, we integrated the human capital management team. I'm very proud to tell you that, five years after the acquisition, no former Putzmeister employee lost his or her job because of the deal. So we kept all their jobs. In the process, we also added some new one. So Putzmeister’s human capital has also been very stably maintained.

Sany also benefited from this deal because the ‘big elephant’ is a very famous manufacturer in this market – they have about 50 years of history. So in terms of localisation of our products, brands, image, Sany also benefited a lot. I would say over the last five years, when we look back at the deal, we are very satisfied.

Some say the deal was an acquisition. From my side, I would call it a marriage. It’s a marriage between German and Chinese business. Before the acquisition, we were very fierce competitors in every market: in Germany, America, Asia, Africa, everywhere. We knew each other very well. We have very different strengths.  Putzmeister have very rich experience in international business. We have very stable technology. Sany is one China’s global companies. We have a very rich market. We are very good with cost control systems. When the two sides meet, it’s a marriage that benefits both of us.

For our marriage, our cooperation the most important thing is that we should know each other very well. It doesn’t matter who is husband or wife. We just need to have very good, smooth communication. Otherwise, with our different cultures it would be very hard to work together. A lot of people are facing the same issues with two companies merged into one – and this applies not only to international mergers but also the local ones. A lot of deals fail because of the different cultures and a lack of communication.

[For a marriage to work], both sides should have advantages so they can benefit from each other. We call this a win-win situation. If it’s only one side winning, then in the end both sides will fail. If both can benefit from this relationship, that kind of marriage will go on forever.

Overall, both Sany and Putzmeister have benefitted from our marriage. If we look at the numbers, that is a fact. But there was some pain during the merger; actually a lot of pain. The first problem we had to face was, how can we merge the teams and how can we merge the markets? Who will benefit from whose market? How do we deal with our employees? That was the first source of pain and the first issue that caused a lot of arguments.

In our case, we first merged the market. As everyone knows, Sany is a global company within the industry but it’s not a very famous global company. We are very strong in the Chinese market. We are very strong in the Asian market but we are not very strong in foreign countries: in Europe and North America, etc. First, we merged all our very hi-tech, very high-requirement markets with the Putzmeister teams’. Then we focused on the China and Asia market. The second step was merging the teams. The concrete business was Putzmeister’s only business, but only part of Sany’s operations.  So we decided to keep 100% of the concrete pump business with Putzmeister. For example I used to be the concrete man in Sany but after merging with Putzmeister, I switched to another business. We felt some pain from these changes, but in the end we’re happy and the numbers are good.

In terms of what the Belt & Road Initiative will mean for Sany, I personally think there are two ways we will change and even see us beating our partners. First of all, the BRI is changing people’s mind-set. It will change minds and bring our brand to a lot of partners and customers. That will build a lot of bridges and spur the imagination about what kind of products and service we can provide.

Second, it will bring more business opportunities. I think that it will bring Sany a lot of projects, with all the investment in infrastructure and the construction projects that will come up. We can get involved in German projects from the outset and we can work closely with German teams. We will see more opportunities and get more business. That is one of our main goals – because we are businessmen.”

Case 2: Fosun Group and Hauck & Aufhäuser
Chinese conglomerate Fosun acquired Frankfurt-based
private bank Hauck & Aufhäuser in 2015

Alan ‘Liu’ Qiang, General Manager of Private Banking & Co-Chief Representative of Frankfurt Office, Fosun Group:
“Fosun has 25 years’ industrial background in China — typically in steel, quite a lot in manufacturing and health care. So we are looking at the market to also try and bring global resources to the China market.

It took us 16 months to get final approval from Germany to take over [Germany private bank Hauck & Aufhäuser (H&A)]. So it was a long process, but we learned quite a lot and finally, we got approval. Our goal was to learn, and this is why we thought we must make this investment, as a bridge in Germany.

We are trying to build three kinds of bridges. The first one is linked to the bank’s origin: they have 3,000 mittelstand [small and medium companies] entrepreneurs’ clients. So based on this clientele, we think we have the responsibility to build a bridge between Chinese and German entrepreneurs to create business opportunities. Based on this goal, we've already taken some very important steps during the past two years. For example, 47 companies from China’s Zhejiang province visited H&A clients to try to build up the collaboration with each other, to create opportunities.

The second bridge we want to build is linked to culture. Fosun learned in Germany how we can marry Chinese speed with German processing. But there is a lot to be done, not only by Fosun but also by the 500 employees of H&A.  So we set up a Fosun Ambassador Programme, and we invite H&A employees to Fosun on a quarterly basis to visit Shanghai and also see the real China. They will bring their impressions, their feelings back to H&A and through H&A spread this feeling to our clients. We hope that we can build up this cultural bridge.

The third point is also very important — figuring out how to provide more services to German and Chinese companies. Financial services are very important, so we must support H&A to independently develop their business. At the same time, we want to provide the necessary financial services to Chinese companies. For example, we just closed a deal for a new material producing company in Germany and H&A will provide financial services to a Nanjing steel company – we helped them close the deal and also provided the necessary advisory work. This makes things smoother. Everyone understands each other. These are the three reasons we invested in H&A.

September 9th is our one-year anniversary. We have a very good relationship with all the employees in H&A and have also created quite a lot of synergies between Fosun and H&A.

There have been quite a lot of challenges but I don't want to look at these [in a negative light]. From my point of view, the first is cultural integration. It’s a process; it takes time. In Germany people are really dedicated in their attitude to work and they like following procedures. From Fosun’s view, we are more dynamic and we adjust based on changes in the macro and micro economy. So, we have a different view of global development.

The most important cultural issue, I don't want to say conflict, was to ensure that the H&A team understood from the beginning that Fosun is a very, very international company. It's not only an investor from China. It's a global investor holding company. H&A has 220 years of history in Germany; it's a very localised company. So how can a localised company be merged into an international family? That was a really big challenge at the beginning.

Fortunately, at Fosun we have implemented a glocal strategy through which we have the local team running the business. That's why we still have our China desk in H&A, to create more synergies in our family and help H&A colleagues understand what is happening.  So after one year, people’s trust began to grow and that way we could conquer the conflicts seen in the beginning.

We are satisfied with how it’s gone in Germany. We are not only investing in Germany. We have quite a lot of other investments in other countries.

I think the most important thing in earning people’s trust is to try to deliver results as soon as possible. That will be very helpful in making both sides more understanding.  We are also trying to merge into and be a part of the society, in European countries. That’s why the week after next we’ll have our entire European global conference in Germany, with people from France, Italy and Germany sharing their experiences. It’s not just our side that is pushing for that. This is also an opportunity for existing companies that have already gone through this process, to share their experiences. That’s important. On the other hand, it will also be an opportunity for us to highlight the speed with which we have been delivering results and this will hopefully help us earn acceptance from the beginning. Then we can build up trust.”

Sandra Freimuth, Head of Corporate Communications & Marketing, Hauck & Aufhäuser:
“Hauck and Aufhäuser has a history of 220 years now, it started in 1796. So, we survived two world wars; we survived five Greek bankruptcies; it was a very long story. But with Fosun, two years ago, we opened a new chapter in our book of history with new characters, with Chinese characters. So, I think that's quite a big deal for us to have a Chinese investor.

We were one of the first big deals covered by media and we got a lot of media attention in 2015. We had to do a lot to educate the public, the media, and our employees. The last two years was a big challenge for us, and now looking back we are really happy to have a Chinese investor.

We did a lot of positive work on building this cultural bridge. But we have quite a lot of good examples of increasing synergies within the Fosun family. We can do the asset management for the entire Fosun family.  We can now, together with Fosun, cooperate with maybe FC Bayern. We do that cooperation in Shanghai. Furthermore, we can now do M&A business in Germany and in China and build a bridge as Allan mentioned. These are a few examples of the really good relationship we have had over the last two years.

We are very happy to have some Chinese guys within H&A working with us, working in Frankfurt. We can see increasing speed and increasing innovation within H&A. I think that's the key takeaways we have from China. It's about innovation and speed. Our Chinese friends are very ambitious, on one hand. They are very curious in a positive way and they have affection for technical things. That’s really impressive. I don’t see that in Germany.

In terms of challenges, the main one was to bridge the cultural gap and Fosun helped us a lot by providing a lot of information. Fosun does a bi-weekly newsletter, which is really rich with information. From the first announcement, Chairman Guo [Guangchang] joined us for a town hall meeting. I think maybe every two months we have a town hall meeting with [members of the Fosun executive team]. We made a lot of effort to give as much information as possible to our employees. I think that was one big thing that our employees saw as being very positive. The Chinese, on the other hand, invited us to send some ambassadors to China. There's one idea I love which is the Fosun Academy, maybe in cooperation with CEIBS, to enlarge this ambassador programme and maybe cooperate/collaborate with an academic institution. Fosun is very much on our side to help us with something like that.”