Emerging markets get out cheque book
A series of high-profile deals this year highlights the growing interest of emerging-market companies in making acquisitions in Europe.
First Sany, the Chinese heavy engineering group, acquired control of Putzmeister, a leading maker of concrete pumps and a prime example of one of Germany’s Mittelstand companies.
Next, China’s Bright Food said it was purchasing Weetabix, the prominent UK cereals company, for £1.2bn. Soon afterwards, América Móvil, the telecoms group run by Mexican billionaire Carlos Slim, announced plans to boost its stake in KPN, the Dutch operator, to 28 per cent.
These deals make headlines because the target companies are well-known in Europe. For European pessimists their acquisition by emerging markets-based groups is another reflection of Europe’s economic crisis and/or terminal economic decline. For optimists, they may be a sign of better things to come, just as a wave of Japanese investments 25 years ago helped reinvigorate key parts of the European economy, notably the British car industry.
With the European economy in turmoil and the global outlook uncertain, there is, as yet, no great rush to invest in the old continent. As data from Dealogic, the research company, shows, cross-border acquisitions by emerging market-based companies has recovered since the onset of the global financial crisis in late 2008 but is still well short of the pre-crisis peak. Cross-border deals last year totalled $236bn versus $275bn in 2008.
Europe is a prime target, with the EU accounting for nearly 60 per cent of the $128bn in acquisitions done by emerging market companies in developed economies last year. For 2012, the share was 50 per cent of $61.3bn.
Bankers and corporate advisers say more European deals are on the way. “We will see more deals, especially in Europe. There is a big interest among Chinese companies,” says Christoph Nettesheim, Greater China managing director for Boston Consulting Group,.
Joe Ngai, managing director of McKinsey’s office in Hong Kong, says: “I think we will see more acquisitions in future by Chinese companies. I think Chinese companies are ambitious. Chinese companies are going global.”
The motives vary. The biggest deals focus on natural resources but these generally do not involve the EU,which is itself looking to boost its investments in resources, particularly energy, around the world.In Europe, emerging market companies are looking for technology (as with Putzmeister) brands (Weetabix) and solid income flows in a secure regulatory environment (KPN).
All these are available elsewhere in the developed world, especially the US. But Europe offers other attractions.
First, with the eurozone in trouble, there are chances to buy cheaply. For example, Putzmeister agreed to the Sany deal after a battering in which sales slumped to €570m last year compared to €1bn pre-crisis. As Mr Ngai says: “It’s a lot to do with opportunity and willing sellers.”
Next, Europe offers variety. Deals are available in all shapes and sizes, giving a potential buyer opportunities to spend less than in the US and still buy a significant business. Weetabix is a case in point. Mr Nettesheim says: “The European market is more diversified, so offers more options than the US.”
Finally, while EU members do raise political issues with China, Brussels has an easier relationship with Beijing than does Washington.
US politicians have intervened in potential acquisitions. In 2008, Huawei, the Chinese telecom equipment maker, dropped the planned acquisition of 3Com, a switchmaker, after Washington’s Committee on Foreign Investment, a body screening deals for potential security risks, refused to clear the plan. Last year, the same committee blocked Huawei’s plans to buy key patents.
It is not just China. In 2006, Dubai Ports World was forced to sell six US ports it bought as part of its takeover of P&O amid security concerns.
In the EU, politicians, particularly in eastern Europe, have questioned potential acquisitions by state-run Russian companies, notably Gazprom, the gas group, mainly because of concern about Russian influence in energy markets.
But, in practice, even Gazprom has completed substantial investments, for example in German gas distribution, and companies from China have raised far fewer political hackles than in the US. In Europe, a central political consideration is often jobs – and foreign buyers are welcome where they bring the promise, or the hope, of employment security.
However, the focus on Europe should not be exaggeraged. As Mr Ngai says: “I don’t think it’s a matter of Chinese companies choosing Europe over the US or other emerging markets. There are plenty of deals going on everywhere.”
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