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ChinaGoingGlobal–ABoomerangStrategyAStudyofChineseOutboundM&AintheManufacturingSectorColumbiaUniversity|SchoolofInternationalandPublicAffairsPresentedbytheSIPACapstoneTeam:YueChenHuilanJordanAlexMetelitsaDiLuFeiQiaoGongpingYangYuhanZhangAdvisor:Prof.MeritJanow,ColumbiaUniversityMay8,2012IntroductionWhoistheClient?BusinessDevelopmentAsia(BDA)isaninvestmentbankingfirmthatadvisesoninternationalmergersandacquisitions,distressedsituations,privateplacement,capitalraisings,valuationsandfinancialrestructurings.BDAspecializesincross-bordertransactionswithastrongtrackrecordadvisingNorthAmerican,European,andAsianfirmsoncross-bordertransactions.2IntroductionWhatistheobjectiveoftheproject?ThegoalofthisprojectistounderstandthecurrentlandscapeofChinesemanufacturingcompanies’outboundM&Aactivities;understandtheinternaldriversandbarriersthataffectthesecompanies’decisionswhethertoconductgreenfieldinvestmentorM&A;andprojectthefuturetrendofChineseoutboundM&Ainthemanufacturingsector.3OverviewSize&VolumeIndustry&GeographyfocusWhat?Macro-levelDrivers• GovernmentPolicy• FinancialSupport• ForeignReserveMicro-levelDrivers• AcquireTechnology/Brand• ExpandMarket• ObtainManagementKnow-howMicro-levelBarriersWhy?GovernmentApprovalProcess• NDRC/MOFCOM/SAFE/SASACInvestmentClimateOverseasIntermediaries• InvestmentBanks,LawFirmsandAccountingFirmsCaseStudies• Successes,failures&inaction• LessonsfromCSHow?GeneralTrendOwnershipStructureTrend• MoreMinorityHoldingPremiumTrendConclusionQ&AFuture?4Section1:China’sOutboundM&A&#sintheManufacturingM&A5ChineseODIvs.theWorldTotal6Source:UNCTAD&HSBCChineseWorldwideOutboundM&A–ManufacturingNumberofdealsbycountryin20057Source:Dealogic,gisChineseWorldwideOutboundM&A–ManufacturingNumberofdealsbycountryin20078Source:Dealogic,gisChineseWorldwideOutboundM&A–ManufacturingNumberofdealsbycountryin20099Source:Dealogic,gisChineseWorldwideOutboundM&A–ManufacturingNumberofdealsbycountryin201110Source:Dealogic,gisManufacturingisstillrelativelysmallpartofoverallOutboundM&Apicture!11Source:CEIC,SIPATeamcalculations!ButOutboundActivityisanincreasingpartofoverallChineseM&AactivityintheIndustrialSector12Source:Baird(2011)ChineseOutboundM&AinManufacturing:DealCountandAvg.DealValueOverTime13050100150200250300020406080100120DealValue(USDm)NumberofDealsSource:Dealogic,SIPATeamcalculationsYear#ofDealsAvgDealValue(USDm)200217512003521200414259200581362006219720073437200845482009494322010681362011109129DealValueDensity2002-2011140102030405060708090Aggregated#ofDealsSource:Dealogic,SIPATeamcalculationsTopManufacturingSubsectors2002-201115Machinery-GeneralIndustrialComputers&Electronics-SemiconductorAuto/Truck-Parts&EquipmentMetal&Steel-ProductsConsumerProducts-MiscellaneousAuto/Truck-ManufacturersTextile-MiscellaneousComputers&Electronics-MiscellaneousSource:Dealogic,SIPATeamcalculationsManufacturingSubsectors162006Subsector#ofDealsAvg.DealValue($m)Telecommunications-Equipment35Machinery-GeneralIndustrial2150Metal&Steel-Products276.8Computers&Electronics-Semiconductors256.5Textile-Miscellaneous228.1Metal&Steel-Processing13.5Machinery-MachineTools114.7Textile-ApparelManufacturing143.6Auto/Truck-Manufacturers1284.2Construction/BldgProds-Infrastructure17.9Chemicals-Specialty1501.92011Subsector#ofDealsAvg.DealValue($m)Computers&Electronics-Semiconductors1216.8Auto/Truck-Parts&Equipment1069.9ConsumerProducts-Miscellaneous729.5ConsumerProducts-HouseholdAppliances741.9Machinery-GeneralIndustrial622.9Metal&Steel-Products613.8Computers&Electronics-Miscellaneous651.3Chemicals-Plastic5387.9Auto/Truck-Manufacturers5150.0Machinery-MachineTools420.0Agribusiness-Agriculture4111.9Computers&Electronics-MeasuringDevices312.3Metal&Steel-Processing3977.5Aerospace-Aircraft3186.0Telecommunications-Equipment33.5Computers&Electronics-Components20.1Chemicals-Diversified21088.0• Increasedfocusonboth“Upstream”(R&D)and“Downstream”(Distribution)Investment• OverallincreaseinvarietyofsubsectorsSource:Dealogic,SIPATeamcalculationsProfitMarginsinDifferentStagesofManufacturing17Section2:Whyisthisoccurring?Whatarethechallenges?18Whyisthisoccurring?! !#$%&$%&'$%(')%*'!&+$%&'&,+-),(').'./00,121%3)#4'3+'351'6+/#.1'+7'85$%)9.'2+*1#%$:);+%'! =51'!+$%&',+-),('?3#)31&4 @$#.3')%%+/%61*'-4'A$)%&'B12$%'$%'C)#65'DEEE'*/#$%&'351'=5$#*'?1..$+%'+7'351'F$%35'F);+%),'G1+0,19.'8+%..'' C)$%'0/#0+.1'H).'3+'-1I1#'/.1'3H+'2)#J13.')%*'3H+'#1.+/#61.'*+21.;6),,4')%*'$%31#%);+%),,4 8+%.+,$*)31*')3'351'85$%1.1'8+22/%$.3'G)#349.'KL35'8+%..'$%'DEED'3+')6M/$#1'.3#)31&$6'#1.+/#61.')%*'1N0)%*$%&'$%3+'7+#1$&%'2)#J13.'' OP1#)#65$%&'&+),'H).'3+'$%6#1).1'6+#0+#)31'6+201;;P1%1..'Macro–Favorablepolicies19Source:CCPITResearchWhyisthisoccurring?! KD35'@$P1'Q1)#'G,)%'RDEKKSDEKTUV'85$%1.1'&+P1#%21%3''H$,,'6+%;%/1'3+'./00+#3'CWX')6;P$;1.')%*')661,1#)31'351'&+$%&'&,+-),'0#+61.. @+,,+H'351'.3#)31&4'+7'2)#J13'+#$1%3);+%')%*'.1,7SH$,,$%&%1..'+7'1%31#0#$.1.'3+'&/$*1'1%31#0#$.1.'3+'*1P1,+0'+P1#.1).'$%P1.321%3'$%')%'+#*1#,4'2)%%1#' Y%6+/#)&1',1)*$%&'1%31#0#$.1.'$%'351'2)%/7)63/#$%&'$%*/.3#4'3+'6+%*/63'+/3