Analysis: China construction machinery industry overseas merger and acquisition situation

Following Sany's 2.7 billion yuan acquisition of German company Puzmeister, Liugong also invested in the acquisition of Polish construction machinery company HSW construction machinery business unit. At the same time, Xugong was planning to acquire Schwing, a German concrete construction machinery giant...

China's top construction machinery makers are now stepping up their efforts to go global amid a flurry of overseas acquisitions. While overseas mergers and acquisitions are no stranger, if you go back 20 years, Chinese companies tend to play the role of being acquired. Now the opposite is true. Experts believe that the tide of cross-border merger and acquisition is a sign of the gradual maturity of Chinese construction machinery enterprises, and an inevitable choice for the development of enterprises under the situation of China's economic globalization. Behind the concentrated outbreak of overseas mergers and acquisitions in China's construction machinery industry, both accidental and inevitable.

Go out to achieve growth

The wave of overseas acquisitions follows Zoomlion's acquisition of a 100 per cent stake in Cifa, an Italian concrete machinery company, in 2008 for €271m. Time has proved Zoomlion's choice right. Zoomlion retained its management and production team when it acquired CIFA, becoming the first large Chinese construction machinery maker to do so. In the three years since it was acquired, CIFA has weathered the economic crisis and last year turned a profit. Zoomlion has gained the support of advanced technology and global marketing network and achieved rapid development.

In recent years, the economic weakness of the United States and the continuous spread of the European debt crisis have provided a good opportunity for the overseas mergers and acquisitions of Chinese construction machinery enterprises. Some enterprises seize the opportunity, in the wave of competition in the development of construction machinery, for China's construction machinery from manufacturing to intelligent transformation laid a solid foundation.

According to the report, 2011 was a record year for the number and value of overseas mergers and acquisitions by Chinese companies: 207 deals worth $42.9 billion; Entering 2012, the momentum of mergers and acquisitions is more intense, many of the acquisition targets are world-class companies. Overseas acquisitions by China's construction machinery giants are not just about dismantling production lines and shipping them back to China. They are seeking brand recognition and distribution networks, as well as their goal of making China the world's largest exporter of construction machinery.

Overseas business becomes more important

At present, the global construction machinery market size reaches 150 billion US dollars. Chinese companies can throw their weight around and go out and grab a bigger slice of the pie. Chinese manufacturers accounted for 15 per cent of the revenues of the world's top 50 construction machinery manufacturers in 2010, up from just 1.6 per cent in 2003. According to the 12th Five-Year plan, the sales scale of Chinese construction machinery industry will reach 900 billion yuan by 2015. To achieve this rapid growth, overseas mergers and acquisitions will undoubtedly be a shortcut for China's construction machinery industry to grow bigger and stronger.

Chen Deming, minister of Commerce, has said that strong enterprises will be encouraged to invest in mergers and acquisitions, integrate resources, cultivate internationally renowned brands and increase support for private enterprises' going global '. He pointed out that in the future, China will speed up negotiations on investment protection agreements with important economic and trade partners, remove barriers to market access, and strengthen protection of investment rights and interests. Strengthen the risk warning to enterprises, improve the overseas emergency handling mechanism; To guide enterprises in dealing with overseas anti-monopoly review and litigation.

This is imperative for China, which is in the stage of development transition. Due to the ongoing financial crisis and the European debt crisis, a large number of European enterprises are facing the situation of declining product sales, defaulting on payments to suppliers and staff salaries, and even on the verge of bankruptcy. This not only arouses the enthusiasm of Chinese enterprises in overseas bottom-fishing, but also provides a rare opportunity for Chinese enterprises to rapidly improve their comprehensive strength and integrate into the international market. If these mergers and acquisitions can be successfully completed, it will play a substantial role in expanding the overseas brand influence of Chinese construction machinery enterprises, absorbing the advanced technology of foreign construction machinery enterprises, and improving the quality of Chinese products. Compared with the star-crossed overseas merger and acquisition in the communications and automobile industries, the road of merger and acquisition of construction machinery enterprises in our country is relatively smooth. In addition, while developing overseas market, Chinese construction machinery enterprises also pay attention to strengthen the overseas trademark and patent layout in recent years, to lay the foundation for the merger and acquisition smoothly.

Mergers and Acquisitions Need to strengthen risk prevention

With the continuous improvement of the overseas marketing and manufacturing system of Chinese construction machinery enterprises and the continuous penetration or deepening of the global market through overseas mergers and acquisitions, the international expansion of China's construction machinery industry will surely enter a higher and newer stage. Therefore, the influence of Chinese construction machinery enterprises in the global construction machinery industry will be increased rapidly, and obtain the right of discourse in the global construction machinery industry. Since the 1990s, overseas M&A has gradually become an important way for Chinese enterprises to invest abroad. Although there are many successful cases, there are also many failure lessons. In 2004, for example, SAIC paid $500 million for a 48.92 percent stake in South Korea's Ssangyong, but the acquisition caused a strike by Ssangyong employees. Since then, Liugong has put on hold its acquisition of Poland's HSW construction machinery business unit. After some twists and turns, the two sides finally reached an agreement.

Analysts say some failures should be allowed to exist on the basis that the more experienced Chinese companies are in overseas mergers and acquisitions, the more these failures need to be looked at and analyzed.

Although the understanding and knowledge of Chinese enterprises on M&A has tended to be mature and rational, risks still exist all the time, and M&A still needs to be cautious. Industry insiders say that the successful merger and acquisition cases of enterprises worldwide are not many. Our construction machinery enterprise must have a clear goal: Why do we need that enterprise? Can you control it? Can the money problem be solved? Therefore, the acquisition of overseas companies should be cautious, as far as possible to avoid risk, in order to really become bigger and stronger. In any case, the merger and acquisition gives domestic enterprises close participation in the international market opportunity, but also promote the completion of the 12th Five-Year development strategy of construction machinery - from a manufacturing power to a manufacturing power, from the extensive type, imitation type, quantity type to science and technology innovation, quality, efficiency type change.