Europe's Deal-Makers Are Starting to Work on China's Timeby , , and
For Europe’s dealmakers, Christmas finally arrived -- with the Chinese Lunar New Year.
A rush of Chinese acquisitions in December, and the prospect of more to come in 2016, has upended calendars, travel schedules and business priorities.
The upshot: Europe is increasingly working on China’s time. Now that some big deals are finally cinched, bankers are getting away for holiday vacations they usually take in December. But beyond the Christmas Day conference calls and delayed trips to the Alps is a new reality: China has become the hot spot for global M&A, and the Western bankers who don’t adapt will lose out.
Chinese buyers have announced plans to spend more than $75 billion on foreign companies already in 2016 -- an almost ten-fold increase from this time last year -- putting them on track to break records for the third year in a row, according to data compiled by Bloomberg.
That includes China National Chemical Corp.’s $43 billion agreement to take over Swiss pesticide maker Syngenta AG, the largest purchase ever by a Chinese company.
In the Cold
One banker working on the Syngenta deal spent Christmas Eve on a three-hour conference call. In what he said was his worst Christmas ever, he had to scrap plans for a holiday on the slopes because he was buried in calls and meetings. The hard work paid off: the deal was announced on Feb. 3, five days before Chinese New Year started.
U.S. targets weren’t spared either. An adviser working on Qingdao Haier Co.’s $5.4 billion acquisition of General Electric Co.’s home-appliances business worked through December in the freezing port city of Qingdao to get the deal over the line before his Chinese clients took their New Year break. He finally went skiing with his family this month. The people interviewed for this article spoke on condition of anonymity because they weren’t authorized to discuss the transactions.
Bankers for KKR & Co. waited to send out marketing materials for the buyout firm’s German silverware and coffee-machine maker WMF AG until this week, after the New Year holidays ended, so they could attract bidders in China, such as Haier Group according to people familiar with the deal. A representative for Haier declined to comment.
The Lunar New Year period, known as the Spring Festival, is China’s most important family holiday and shuts down the world’s second-largest economy for a week. As workers return to their home villages, making almost 3 billion voyages, offices are closed, meetings are canceled and deals are delayed. The first day of the new year -- the Year of the Monkey -- began on Feb. 8 and mainland Chinese stock markets in Shanghai and Shenzhen closed through Feb. 12.
As inconvenient as that might be for European bankers, used to spending the Christmas period in a mountain chalet, the deals coming out of China are too big to ignore.
Once considered hesitant and unpredictable as buyers, Chinese companies now have the backing of local banks and the weight of a powerful government hungry for strategic assets such as semiconductors, agriculture and industrial technology.
Beijing Enterprises Holdings Ltd., the state-controlled conglomerate that sells everything from beer to energy, agreed on Feb. 4 to buy EEW Energy from EQT Partners AB for 1.4 billion euros ($1.5 billion). That was the biggest direct Chinese investment in a German company to date. A day later, the Chicago Stock Exchange said a Chinese investor group agreed to acquire it, giving the buyer entry into the intensely competitive U.S. stock market.
Still, the country’s powerful checkbook isn’t welcomed everywhere, and regulatory hurdles have killed deals and may dissuade sellers. In particular, the Committee on Foreign Investment in the U.S., which vets acquisitions to protect national security, has limited deals with ties to the U.S.
Last month, Royal Philips NV scrapped a $2.8 billion sale of its Lumileds lighting-components unit to a consortium led by GO Scale Capital of China because of opposition from CFIUS. San Jose, California-based Fairchild Semiconductor International Inc. rejected a bid from China Resources Microelectronics Ltd. and Hua Capital Management last week. Fairchild had won hundreds of thousands of dollars in U.S. agency deals last year.
Devin Nunes, the California Republican who leads the House Intelligence Committee, said, when asked about the Fairchild deal, that China’s history of “brazen acts of espionage and cyber crime” makes their interest in companies with ties to the U.S. government “a source of legitimate concern.”
But that opposition hasn’t dampened China’s push to expand. Deals involving Chinese companies make up more than a quarter of the approximately $394 billion spent on M&A so far this quarter, according to data compiled by Bloomberg. That’s second only to the U.S. and more than all the countries in the Middle East, Africa, Latin America and the Caribbean combined.
“Over the last few years, Chinese companies have turned into an important group of buyers on the international deals market,” Yi Sun, a partner at EY in Germany and head of Chinese business services in German speaking countries, said in a report published this month. “They are increasingly involved in mega-deals and are paying billions for European companies.”
The bottom line is, bankers with assets to sell should resign themselves to more Christmases at the office.