china goes abroad (abstract) - maverlinn
DESCRIPTION
This Maverlinn presentation on China outbound expansion was delivered in January 2014 in Beijing, China by Olivier Coispeau, Maverlinn Europe founder.TRANSCRIPT
China did not really go West yet … for good reasons
Confidential, January 2014
Presentation
• Why China is now interested to move abroad
• Objectives for a smooth external growth policy
• How to design a successful high return M&A strategy
Page 2
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GD
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row
th r
ate
A simple GDP growth differential analysis explains why Chinese companies have been more prone to stay home
Results in a strong rebalancing of world real GDP mix
Long term base line worldgrowth diffential
China
Euro zone
8,2%
3,5%
0,0
2,0
2000-2007 2010 2013 2020 2025 2030
Page 3
of world real GDP mix at 2005 PPP
6649 43
18
23 28
1628 29
0%
20%
40%
60%
80%
100%
2010 2030 2050
China
Non OECD
OECD
With a stronger emphasison emerging countries
Therefore the market mix is likely to impact the value
of OECD firms
Sources : OECD
+ 75%
China GDP has been steadily decelerating in the last 4 years
40 000
50 000
60 000
8
10
12
14
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0
10 000
20 000
30 000
Q1-10 Q2-10 Q3-10 Q4-10 Q1-11 Q2-11 Q3-11 Q4-11 Q1-12 Q2-12 Q3-12 Q4-12 Q1-13 Q2-13
0
2
4
6
8
GDP GDP growthSource : World Bank
China maintains its 2013 GDP growth target at around 7.5% to leave some leeway for economic restructuring…
But usual suspects for M&A operations including « mittelstand » represent only 10% of total firms in China
Large firmsRevenues > 300 Mio RMB
1 %9 %
37 % • 80% of SMEs put priority on APAC markets
China company profile by size in China
Page 5
Source : China statistical yearbook, UPS Monitor, China SMEs Economic Information Press
Medium firms Revenues > 30-300 Mio RMB
Small firms Revenues > 30-300 Mio RMB
90 %30 %
33 %
APAC markets
• SMEs contribute to :− 55% of GDP− 63% of export− 80% of employment
# of companiesest. 350.000
Σ revenuesin China
As the direct M&A fast track seems too risky, China firms has much focused on alternative routes to go abroad
Prepare for external growth
Preparing carefully for M&A routes was perceived as tedious and time consuming
Page 6
Minority investmentsPrestige acquisitions
Joint dealsRestructurings
Assets deals
Direct M&A“Fast track to acquisition too risky”
A dilemna :M&A is needed but perceived as too risky
Access to global markets Time/risk are key
Presentation
• Why China is now interested to move abroad
• Objectives for a smooth external growth policy
• How to design a high return M&A strategy
Page 7
There are four objectives for Chinese companies to develop more agressively abroad
Normal step in corporate development :Chinese then global presence
Comments :
Switch from export based economy to richer development model based on indigenous
1
Page 8
Switch business model from workshop of the world to innovation powerhouse
Access to worldwide profit pool
Secure access to strategic resources : IP, natural resources
model based on indigenous innovation
• Build strong brands in China and abroad and build quality “made in China” image
• Chinese companies are still in the early stage of making M&A investment abroad 4
3
2
The development of a high quality M&A pipeline takes a bit of time to avoid the usual “dead rat syndrom”
Initial scan of key possible external
Smooth and effective closing of deals
Short list of best opportunities on the market « investment minded »
Page 9
• The track record of China M&A operations is likely to improve quickly• The objective is to develop the best quality network for best deals on the market
possible external growth options
closing of deals
Active maping and market positionning as a « first call » party to deal with
On-field integration excellence
We favor integrated M&A approach with emphasis on selection of best option for maximum impact
We emphasize multicultural strategic finance as our distinctive
Page 10
• We rely on an international network in China, in Europe and beyond• Most of our customers are Fortune 500, dealing with complex growth issues
We serve industry leaders on impact M&A and also advise on preparation and integration to optimize success
strategic finance as our distinctive footprint, meaning we integrate M&A, culture and strategy
It seems almost common sense that participating to world global growth opportunities is the way forward for China
China faces some challenges … and trusted partners are much needed
Getting“China and the United States are going to be
the two big factors in the world over the -
• Perception of « made in China »• Innovation / R&D / Value Chain
Page 11
Getting
to the
point
the two big factors in the world over the -over decades to come”
Warren Buffett
“Emerging markets like India and China are witnessing a remarkable transformation”
Bern Bernanke
“Chinese growth is a wonderful human success story that could kill us all”
Paul Krugman• Real Estate Bubble• Income distribution
• Labor costs• Environmental liabilities
Industry Household
Macro Eco
Presentation
• Why China is now interested to move abroad
• Objectives for a smooth external growth policy
• How to design a high return M&A strategy
Page 12
Deal story lineDeal background
"Mittelstand" M&A Case : SHI (China) – Ferretti (Italy)
• After Ferretti was delisted in 2003 and taken over by Permira, Candover acquired the business in 2007 for € 1.7 billion
• SHI, Shandong Heavy Industrial the parent of
• Ferretti based in Forli (Italy) is the European leader for luxury 7 to 80 meters yachts on the US$ 11 billion yacht market
• Ferretti made € 750 million revenues in 2011 :
Shandong Heavy built an expertise in distressed security deals
Page 13
• SHI, Shandong Heavy Industrial the parent of Shantui and Weichai, made a first deal acquiring ailing Moteurs Baudoin in Marseille
• Shandong Heavy has been looking for a while to make some acquisition in this space in Europe, especially on the distressed equity market
• Shandong Heavy paid only € 178 million for 70% of the yacht maker
• Ferretti made € 750 million revenues in 2011 : 500 yachts / year (only 17 sold in China), 2,800 staff. Ferretti carried a € 700 million debt
• Strong growth of Brazil demand and € 300 million invested in a brand new Brazilian shipyard (40% of revenues)
Deal story lineDeal background
“Mega” M&A Case : Shuanghui (China) – Smithfield (USA)
• Shuanghui acquired Smithfield Foods in May 2013 for $ 4.7 billion at a total value including debt of $ 7.1 billion. A 31% premium to May 29 stock closing price
• Smithfield Foods founded in 1936 in (USA) is the world largest hog farmer and processor
• Shuanghui (Shineway) is a fast moving private
Shuanghui managed to strike swiftly a critical deal for China in the US
Page 14
stock closing price
• Smithfield Foods made € 13.1 billion revenues in 2012, about twice the size of its better value acquiror, which posted $ 6.5 billion revenues
• Shuanghui was looking for a large external pork source for China : Smithfield can provide a capacity to slaughter as many as 110,000 hogs / day. They already had a long relationship
• Smithfield Foods is known for its quality breeding and processing of hogs
• Shuanghui (Shineway) is a fast moving private company based near Shenzhen
The size of the deal and its careful preparation is a clear example of what Chinese companies can now achieve
Comments
• China has learn how to navigate the delicate political and regulatory waters in the USA
• China sweet spot used to be < $ 500 million firms, but 13.1
Smithfield Foods Henan Shuanghui
SalesBillion USD
Page 15
now acquiring large listed companies is no problem
• Joint ventures and private companies are no longer the sole focus for China moving abroad
• Strategic investment are still key: Smithfield and 4 others control 73% of the US pork processing industry
• Smithfield was identified as a company in need following loss making exercice in 2008 and 2009 and Continental Grain recommandation to split the firm
Good upstream preparation was a key success factor
13.1+7% from 2011 6.5
+11% from 2011
Market Cap.Billion USD
2012 ProfitMillion USD
Meat outputMillion of tons
Staff
3.6 14.2
361 472
3.64 1.71
46,050 61,050
China appetite for outside opportunities and high returns can be better leveraged to step-in on good M&A deals
+ Lower risk
Best conditions for stepping up on the market have materialized
Awareness Opportunities=• For China MNCs
− Enhanced • Have a dedicated • Capacity to scan − Enhanced strategy
− Better IRR
− Visibility
• For senior management
– Preparation
– Confidence
China M&A has to continue to adjust and strive for excellence
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• Have a dedicated team to ensure higher quality
• Better manage KSF
– Organization
– Knowledge
– Due diligence
– Final deal structure
• Capacity to scan best opportunities, including hidden ones
• Define key targets
– By sector
– By country
The secret for successful M&A is good upstream and downstream preparation
1. Upstream preparationM&A strategic group
2. M&A executionTrusted expert team
Expert M&A team
Clear external growthstrategy
1 Strategic M&A is a three step process
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M&A strategic group Trusted expert team
3. IntegrationTransition management
Expert M&A team Trust & empowerment
for fast action
Early identificationof acquisition benefits
Smart transition management to leverage
acquisition
2
3
A Chinese value added M&A strategy must be designed as a two way bridge to deliver even better results
Strategy + M&A create value
• Strategic and finance expertise are key to position quickly on best deals
• Real rep. office with trusted local partners
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• Real rep. office with trusted local partners
• Communication lines must be effective and smooth to move quickly
• Immediate benefits for Chinese firms :
– Macro-economic / industrial weekly insights
– Sectorial knowledge for priority investments
– « à la carte » services to Chinese strategy team
Investing for value added M&A is a winning investment
We have built an express way bridge to « launch & run » a trusted and effective integrated M&A desk
2. What we bring from China :
– Understanding of China key ambitions and constraints
– Up-and-running full service team to detect and chase best M&A opportunities
– Precision due diligence capacity made to measure
1. What we bring from Europe :
– Unparalleled M&A on-field experience in a large EU industry cross section and beyond (ex. Africa)
– In-depth understanding of European expectations regarding transactions
– Euro team single point of contact for China
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• China : Long term local presence, excellent M&A expertise and business network• Europe : Home base, capacity to spot opportunities and quickly profile best targets
Conclusion
• Why China is now interested to move abroad
• Objectives for a smooth external growth policy
• How to design a high return M&A strategy
Page 20
Next steps
Deploy “Value Added” M&A strategy
• Define key priorities for Chinese client
• Taylor best M&A strategy
Page 21
• Taylor best M&A strategy
• Implement winning organization
• Start external investment programme
• Agressively / smoothly manage investment
Leading a world of change, together