Date
18 October 2017
Zhejiang's Geely Automobile Holdings Ltd. faced enormous challenges in restructuring Swedish automaker Volvo Car Corp. Photo: Bloomberg
Zhejiang's Geely Automobile Holdings Ltd. faced enormous challenges in restructuring Swedish automaker Volvo Car Corp. Photo: Bloomberg

INTERVIEW: Europe wants China deals for 1.3 billion reasons

Chinese companies have been snapping up assets all over the world, and Europe is one of their favorite destinations for acquiring technology and brands.

By good fortune, many companies in Europe are quite open to Chinese buyers, who could provide access to 1.3 billion consumers, said a senior executive of A Capital, a private equity fund focused on China-Europe investments.

“The real rationale for these deals is not just money but more importantly access to the Chinese market,” A Capital president Andre Loesekrug-Pietriveteran told the Hong Kong Economic Journal’s EJ Insight in an interview.

“If you only provide money, the problem is that there is a lot of competition and local investors will often prevail. But if you can provide access to the Chinese market, which becomes the largest one in many sectors, then you have a unique position.”

Gripped by a debilitating debt crisis, Europe has been struggling to regain its growth momentum. And for many policymakers and corporate leaders in the continent, one sure way out of the vicious debt-austerity-recession cycle is to seek new markets for their products and services.

As such, access to China market will become the “real trigger” for outbound deals by Chinese investors in coming years, said Loesekrug-Pietri, who has spent seven years in China. 

Europe has been ranked the top location of Chinese outbound merger and acquisition activities for the past two years, according to A Capital’s Dragon Index. Last year, Chinese investments in Europe increased 21 percent year on year to US$12.6 billion. He expects the double-digit growth to continue this year.

Loesekrug-Pietri also noted that many Chinese investors are now open to a minority stake as a long as the deal allows them to gain entry into a good European target, unlike before when they aimed for majority or 100 percent ownership.

“Taking a minority stake is a very smart move by Chinese investors to cross-border transactions that are always sensitive,” he said, obviously referring to the all-too-common wariness of regulators to Chinese acquisitions.

Fosun International Ltd. (00656.HK), an investment arm of the Chinese conglomerate held by billionaire Guo Guangchang{郭廣昌}, made its first foray in Europe in 2010, acquiring a 7.1 percent stake in French resort operator Club Med, and followed it up a year later by buying a 10 percent stake in Greek fashion retail group Folli Follie S.A.

Teaming up with a local investor is also vital to reduce various risks in a transaction, Loesekrug-Pietri said, as they would have a better understanding of the stakes involved and be able to navigate through local regulations, worker unions, media and other considerations that could make or break a deal.

One warning from the veteran investor: don’t go for bankrupt companies. Restructuring a distressed company in a foreign country is fraught with dangers, he said, citing the enormous bureaucratic and legal challenges faced by Zhejiang’s Geely Automobile Holdings Ltd. (00175.HK) in restructuring Swedish automaker Volvo Car Corp.

And hiring professional advisers like lawyers, banks and strategic consultants should be viewed as  “an investment, not cost” as they would help companies avoid common pitfalls such as outdated technology in such deals, Loesekrug-Pietri said.

‘Strategic complementarity’

Europe has become a bright spot for Chinese investors in recent years due to its “strategic complementarity”, offering them internationally renowned consumer brands and cutting-edge technology, which are both vital for Asia’s largest economy to shore up its competitive edge.

“The big theme in China today is urbanization, which has several consequences like growing consumption, booming transportation needs, major energy and pollution challenges, and last but not least food safety concerns. Most of world’s leading companies in these areas are in Europe, and they want access to China market now more than ever,” he said.

A Capital targets mid-range European companies that are already leaders in their sector in the West but still have limited presence in China. The firm also focuses on start-ups that have key technologies in environmental protection and healthcare industries but have insufficient scale in Europe yet.

Last year A Capital raised a specialist fund aimed at encouraging Chinese investment in European companies with growth prospects in Asia, and garnered cornerstone investments from Chinese sovereign wealth fund China Investment Corp..

– Contact the reporter at [email protected]

CG

Freelance journalist

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