Voice from China Quarterly update on the M&A market in China - 1ST EDITION 2019 - Oaklins
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Voice from China Quarterly update on the M&A market in China 1ST EDITION 2019
ANGELA CHEN
Managing Director
Shanghai, China
+86 21 5012 0990
a.chen@hfg.oaklins.com
Introduction
Despite headwinds from low Chinese outbound M&A was a mixed Inbound deal volume also rose slightly
growth and Sino-US trade bag in 2018. Although it continued compared with the prior year, as China’s
to decline from its 2016 peak for the government continued to open the door
tensions, China’s 2018 M&A
second year in a row, the volume of further for foreign investment.
activity remained reasonably activity increased a little over 2017 and
strong. the value of the deals struck remained
higher year-for-year than it was from
2009 through 2014.
Outbound M&A, China 2009-2018¹
Year 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Number 136 181 183 176 145 194 283 361 311 256
Inbound M&A, China 2009-2018²
Year 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Number 349 470 260 218 198 163 204 201 165 174
¹ Factset
² Factset
OAKLINS – Voice from China · March 2019 3
HERE’S OUR TAKE ON THE KEY FACTORS THAT SHAPED OUTBOUND INVESTMENT ACTIVITY IN 2018:
ͽͽ Technology, brands and distribution market.
were all central themes, as the ͽͽ The popularity of European assets
Chinese government encouraged rose to new heights among Chinese
acquisitions of a strategic nature. buyers, as the US-Sino trade war
Underlying this was the authorities made them more cautious towards
ongoing effort to restructure and investing in the US. Meanwhile,
squeeze costs out of China’s attracted by the region’s low labor
manufacturing sector, and more than costs and efforts to displace China
half of the outbound transactions as the world's factory of choice,
that took place involved high- Southeast Asia also emerged as a hot
end manufacturing and smart spot for Chinese investors.
manufacturing. Great Star Industries, ͽͽ The volume and value of Chinese
for example, acquired a 100% stake in acquisitions along the route of China’s
Lista Holding AG, a Swiss professional Belt and Road initiative increased
workshop and warehouse furnishings significantly. Among these countries,
manufacturer. India, Singapore and Israel were the
ͽͽ Always inclined to chase after big most popular destinations.⁴
names, Chinese buyers also struck ͽͽ Making it more difficult for Chinese “During 2019, we expect
some big deals to acquire companies firms to undertake acquisitions China’s outbound M&A
with strong brand equity. Shandong abroad, the capital markets were activity to remain strong
Ruyi, for instance, purchased a tighter than expected in 2018, as
across-the-board, as the
controlling stake in Bally, the highly the government responded to the
regarded Swiss maker of luxury depreciation of the RMB by placing Chinese authorities continue
shoes and accessories, in order stricter controls on foreign currency. to encourage strategic
to improve its product lineup and China’s domestic capital market, acquisitions. Inbound M&A
bolster its international image. Other meanwhile, experienced a severe
should also increase, as the
well-known Chinese clothing brands, slump in the second half of 2018, due
such as Zhejiang Semir Garment and largely to structural deleveraging. government continues to woo
Shanghai La Chapelle Fashion, made ͽͽ As opposed to state-owned entities, foreign investment. ”
similar deals for apparel companies private enterprises were the main
with international brand appeal. drivers of Chinese outbound M&A ANGELA CHEN
ͽͽ Much of the overseas M&A activity activity for the year, accounting for MANAGING DIRECTOR,
that took place in 2018 was 85.16% of the total.⁵ OAKLINS, CHINA
aimed at extending the Chinese
buyers' distribution reach to new
geographies. One of the 10 largest
transactions for which the terms were
disclosed, for example, was Qingdao
Haier’s acquisition of Candy, with the
Chinese consumer electronics and
home appliance giant purchasing a
100% stake in the Italian electronic
appliance manufacturer to gain quick
access to the Western European
³ http://www.sohu.com/a/285178151_618572
⁴ https://mp.weixin.qq.com/s?__biz=MjM5MjczNjk1NQ==&mid=2650254431&idx=1&sn=551e5cfdb4c3704ab99be2b1882835c3&chksm=bea2bf8b89d5369d9a732e2b7306c-
61c51fe0674c16ae9f4046c8a7e2d7ee248c2981b12e713&mpshare=1&scene=1&srcid=0211R0typGld4VOaZLpaKfhl#rd
⁵ http://www.morningwhistle.com/info/48625.html
THESE ARE THE CHIEF FACTORS THAT WILL DRIVE OUTBOUND M&A THIS YEAR:
ͽͽ We expect the RMB to stabilize in Inbound M&A is also likely to thrive, of manufacturers in the auto sector, and
2019, following last year’s decline. as the global supply chain continues once overseas investors become aware
And with China’s financial authorities to be reorganized and multinationals, of these changes, there is liable to be
relaxing their funding policies to especially in the manufacturing sector, a significant upswing in inbound M&A
support the flagging economy, it seek to divest their Chinese operations. activity.
should become easier for Chinese Multi-Fineline Electronix, a wholly-
companies to obtain funding for owned subsidiary of Suzhou Dongshan With the authorities continuing
outbound deals. Precision Manufacturing Co., for to liberalize the policies
ͽͽ Alongside technology, the example, has recently entered into an
governing foreign investment
infrastructure sector will become a agreement with Flex’s Multek subsidiary
major focus for outbound M&A, even to acquire the latter’s China-based
in China, we expect inbound
as distribution and brand-related operations.⁶ acquisitions to flourish in 2019.
transactions continue to predominate.
With growth slowing and trade More generally, with the authorities
frictions with the US ongoing, the continuing to liberalize the policies
Chinese authorities will do all they governing foreign investment in China,
can to boost the economy. Given that we expect inbound acquisitions to
infrastructure-related construction flourish in 2019 — especially in the
has an outsized impact on GDP, we auto and financial sectors. A case in
expect the government to strongly point is the latest policy adjustments
endorse outbound investment in this issued last June, which further relaxed
sector in the context of its Belt and foreign ownership restrictions in
Road initiative. several industries, including finance,
ͽͽ The flow of outbound M&A to auto and agriculture. For many types
Southeast Asia will continue to of Chinese financial institutions, the
accelerate due to the region’s government raised the limit on foreign
cheaper labor, setup and operational ownership to 51%. Similarly, limits on
costs. ownership were raised for many types
CONCLUSION
Despite a low-growth environment, From the standpoint of M&A, 2019 strongly supported by the Chinese
a tight monetary policy and an is likely to live up to its reputation government. New outbound
expanding trade war with the US, for optimism as the Year of the Pig. investments in the infrastructure
Chinese M&A activity remained Foreign capital flows to China will be sector should receive a major boost
reasonably strong throughout 2018. lured by a much friendlier investment from the authorities as well.
Much of this was due to the Belt and environment and readier access
Road initiative and other moves aimed to funds, while strategic outbound
at reorganizing the global supply M&A focused on technology, brand
chain. equity and distribution will also be
⁶ https://www.prnewswire.com/news-releases/flex-to-divest-multeks-china-operations-to-multi-fineline-electronix-inc-mflex-300619846.html
OAKLINS – Voice from China · March 2019 5
Recent M&A transactions
Thirty-nine Chinese outbound The lion’s share of these deals took Among these transactions, 26 disclosed
transactions closed in the fourth quarter place in Europe (46%), followed by Asia the deal’s value, with the largest pegged
of 2018, compared with 35 during the Pacific (31%) and Latin America and the at US$1.6 billion (SINA Corp.; Yunfeng
final quarter of 2017, as the country’s Caribbean (10%). Financial Group Ltd.; City-Scape Pte Ltd.;
overseas M&A activity continued to Giant Investment (HK) Ltd.; Ant Financial
thrive despite significant economic Services Group Co., Ltd. (Hong Kong);
headwinds and regulatory hurdles. Transactions by region MassMutual Asia Ltd. /Private Group/;
Meyu International Co., Ltd.; Sheen
During the last quarter of the year, 46% Light Development Ltd.; Harvest Billion
technology, media and telecom was International Ltd. - MassMutual Asia Ltd.).
the top sector for Chinese outbound 5%
investment (26%), followed by financial
services (21%) and consumer & retail Q4 2018 26 disclosed transactions
8%
(15%). by value
10% Transaction size Number of
Transactions by industry
(US$m) transactions
26%
< 50 11
31%
3%
50 – 100 4
3%
Europe
3% 100 – 250 4
Asia Pacific
5%
Latin America and Caribbean 250 – 500 2
5% 21%
United States and Canada
500 – 1,000 2
Africa/Middle East
8%
1,000 – 2,000 3
15%
TMT
Financial Services
Consumer & Retail
Energy
Construction &
Engineering Service
Logistics
Automobile
Chemical
Industrial, Machinery
& Components
Four transactions disclosed valuation multiples
Transaction Implied Implied
Target Target Target
Buyer companies value EV/ EV/
company country industry
(US$m) revenue EBITDA
Kidiliz Group Consumer Zhejiang Semir 131.52 0.26x N/A
SAS & Retail Garment Co., Ltd.
Dr. Panda Ltd. TMT TAL Education Group N/A 1.75x 8.98x
Radisson Consumer City of Shanghai; Jin 342.23 0.64x 5.20x
Hospitality AB & Retail Jiang International
(Holdings) Co., Ltd.;
Radisson Hospitality AB
/Private Group/;
SINO-CEE Fund
CPFL Energias Energy CPFL Energia SA; 1,287.33 9.10x 14.01x
Renováveis SA Government of China;
State Grid International
Development Co., Ltd.;
State Grid Brazil Power
Participações Ltda.
OAKLINS – Voice from China · March 2019 7
Spotlight on: Furnishing
INDUSTRY OVERVIEW AND
M&A DYNAMIC
Benefitting from the rapid growth handful have a market capitalization in During 2018, the sector engaged in
of new middle-class households excess of RMB 10 billion. These include frequent outbound M&A deals for which
with greater purchasing power, the Jason Furniture (Hangzhou) Co., Ltd. financing was readily available, and the
Chinese furnishing market is booming. (RMB 20,533.8 million) and expectation is that this will continue
According to the National Bureau Suofeiya Home Collection Co., Ltd. – and even accelerate – over the next
of Statistics, in 2017, total sales by (RMB 16,723.30 million).⁸ two years.⁹ These deals generally aim to
furniture manufacturers grew 10.1% accomplish three things:
year-over-year to RMB 905.6 billion, The next three years is seen as a critical
while total profits grew 9.3% year-to- period for the industry. Tremendous 1) Raise brand awareness and grow
year to RMB 56.52 billion.⁷ During the consolidation is expected to take place, market share by acquiring well-known
past few years, new leading players and the companies that survive this foreign brands.
have emerged in each segment of the free-for-all will come out the other side
industry. Nine new Chinese furnishing as tier-1 players with over RMB 10 billion 2) Expand the buyers’ product portfolio
companies were listed in 2017, and that in market capitalization. Any remaining and gain cross-selling opportunities
number quadrupled during the second players will either be bought out or through vertical integration.
half of 2018. will exit the market gradually. Under
these circumstances, most Chinese 3) Reduce cost structures and improve
Yet, despite the size of this furnishing companies, especially those profit margins through horizontal
RMB 3 trillion-plus market, there are that are listed, are expected to resort integration.
no truly dominant players. At the same to cross-border M&A to accelerate their
time, among listed companies, only a expansion.
⁷ National Bureau of Statistics; https://en.kukahome.com/support/kuka-acquires-rolf-benz.html
⁸ As of 29 January 2019
⁹ http://www.jia360.com/new/48586.html
This was reflected in deals struck by
four of China’s leading furnishing
companies last year:
Markor International Home Furnishings Nature Home Holding Co., Ltd.
Co., Ltd.
Nature Home Holding Co., Ltd. is an
Markor International Home Furnishings investment holding company engaged
Co., Ltd. sells furniture-making materials in the manufacture and sale of high-
and services, such as its solid wood end home decoration products. It also
and sand collection, as well as retail operates a trademark and distribution
household goods. In January 2018, network. In May 2018, it announced that
Markor announced it had acquired a it had acquired Wellmann from Alno AG
60% stake in M.U.S.T. Holdings Ltd. for for an undisclosed amount.
US$4.92 million in an all-cash deal.
Company Strategy: Nature Home
Company Strategy: Markor plans to targets the high-end of the furnishings
optimize its supply chain by leveraging market through acquisitions, and
M.U.S.T.’s Vietnamese manufacturing Wellmann is a maker of luxury kitchen
facilities to lower its production costs. furnishings. In this case, Nature Home
At the same time, it hopes to raise its and Wellmann already had a close
brand awareness by adding M.U.S.T.’s business relationships since 2015.
well-known Jonathan Charles furniture
line to its product portfolio. ͽͽ Market cap: US$588.94m
ͽͽ Revenue: US$607.17m
ͽͽ Market cap: US$1,097.18m ͽͽ EBITDA: US$60.92m
ͽͽ Revenue: US$607.85m
ͽͽ EBITDA: US$104.81m
Jason Furniture (Hangzhou) Co., Ltd.
QuMei Home Furnishings Group Co., Jason Furniture (Hangzhou) Co., Ltd.
Ltd. (“Kuka”) designs, manufactures and
sells living room and bedroom furniture,
QuMei Home Furnishings Group Co., including sofas, dining tables, beds,
Ltd. designs, produces and sells home chairs and mattresses. In January 2018,
furniture products made from a variety it announced a joint venture with Natuzzi
of hardwoods. In August 2018, QuMei to expand Natuzzi’s retail network in
Home announced a successful tender the Greater China region. Kuka invested
offer for a 98.36% stake in Ekornes ASA EUR 65 million for a 51% share of the JV.
for US$630 million. In March 2018, Kuka acquired all equity
of another company, Rolf Benz AG, for
Company Strategy: Taking advantage US$51 million.
of Ekornes’ premium product line and
strong brand awareness, QuMei plans to Company Strategy: Kuka seeks to
help it quickly enter the Chinese market improve its international positioning and
in order to capture additional market brand awareness through synergistic
share. acquisitions.
ͽͽ Market cap: US$474.57m ͽͽ Market cap: US$3,050.64m
ͽͽ Revenue: US$306.91m ͽͽ Revenue: US$9676.31m
ͽͽ EBITDA: US$49.24m ͽͽ EBITDA: US$133.28m
OAKLINS – Voice from China · March 2019 9Case Study:
Jason Furniture (Hangzhou)
Co., Ltd. (“Kuka”)
In March 2018, Jason Furniture EVALUATION
(Hangzhou) Co., Ltd., trading
On 28 February 2018, The Hong Kong
as Kuka Home, agreed to
unit, wholly owned by Kuka, signed
acquire RB Management AG an equity acquisition agreement with
and a 99.92% stake in Rolf Locomore GmbH, Rolf Benz’s underlying
Benz AG & Co. KG from Locom shareholder. The dealʼs valuation is
GmbH & Co. KG for EUR 41.6 based on 8.5 times the underlying
companyʼs 2016 audited EBITDA of
million (US$50.7 million).
EUR 4.89 million, and net of disposal
of its bedding business. In order to
justify the price, Kuka Group Chairman
Gu Jiangsheng noted that “Made in
ABOUT THE TARGET Germany” represents a major asset to
Kuka, which it plans to capitalize on
Founded in 1964, Rolf Benz is the best- going forward.
known upholstered furniture brand in “Kuka intends to increase
Germany (GFK Brand Awareness Study On April 5 2018, the German Regulatory investment in the Rolf
2016), and the companyʼs three major Authority approved the transaction.11 Benz brand – and not just
brands, Rolf Benz, Huelsta Sofa, and
Freistil, offer consumers a wide range The acquisition complements Kuka’s
financially. We can support
of different styles and price points. Over existing portfolio of living room and them with our knowledge
80% of Rolf Benz’s sales are in Europe, bedroom furniture. and network of the Chinese
and all of their sofas are produced by market. We are confident that
their parent companyʼs plant in Nagold,
in the southwest German state of
this will enable Rolf Benz to
Baden-Württemberg.10 grow more quickly and more
profitably in the Chinese
market as well as in other
markets.” 12
GU JIANGSHENG
CHAIRMAN, KUKA GROUP
10
Factset
11
Factset
12
https://press-en.rolf-benz.com/en/pressarchive/detail.html?unique_id=1228APPENDIX: 39 OUTBOUND TRANSACTIONS CLOSED BETWEEN OCTOBER AND DECEMBER 2018
Target Transaction
Date Acquirer Target country Industry value (US$m)
2-Oct-2018 Zhongneng Vehicle Group Co., Ltd. Moto Morini Srl Automobile 11.58
Consumer &
3-Oct-2018 Zhejiang Semir Garment Co., Ltd. Kidiliz Group SAS 131.52
Retail
9-Oct-2018 TAL Education Group Dr. Panda Ltd. TMT -
QuMei Home Furnishings Group Consumer &
9-Oct-2018 Ekornes ASA 700.92
Co., Ltd. Retail
China Singyes New Materials Financial
19-Oct-2018 Huabei Ltd. 7.24
Holdings Ltd. Services
Americaʼs Advanced
China Infrastructure Construction
22-Oct-2018 Wellness Centers Healthcare -
Corp.
LLC
Shanghai Aohua Photoelectricity WISAP Medical
26-Oct-2018 Healthcare -
Endoscope Co., Ltd. Technology GmbH
30-Oct-2018 Highsun Holding Group Ltd. Fibrant BV Chemical 241.62
Temasek Capital Pte Ltd.; Beijing
Benyfit Natural Pet Consumer &
1-Nov-2018 Hosen Investment Management -
Food Ltd Retail
LLP; Billy + Margot Ltd.
Eastern Steel Sdn. Financial
1-Nov-2018 Shanxi Jianlong Industry Co., Ltd. 0.00
Bhd. Services
5-Nov-2018 Huadong Medicine Co., Ltd. Sinclair Pharma Plc Healthcare 238.35
Guide Investimentos
Fosun International Ltd.; Fosun Financial
5-Nov-2018 SA Corretora de 94.07
Property Holdings Ltd. Services
Valores
Norinco International Cooperation
5-Nov-2018 Energija Projekt dd Energy 38.14
Ltd.
COFCO Bio-Chemical
COFCO Biochemical (Anhui) Financial
9-Nov-2018 Investment Co., Ltd. 1,398.68
Co., Ltd. Services
/3 Subsidiaries/
OAKLINS – Voice from China · March 2019 11Target Transaction
Date Acquirer Target country Industry value (US$m)
Elec-Tech Solid State
9-Nov-2018 NVC Lighting Holding Ltd. TMT 142.64
Lighting (HK) Ltd.
Noblelift Intelligent Equipment
12-Nov-2018 Savoye SA TMT -
Co., Ltd.
Financial
12-Nov-2018 Patron Ltd. /Wang/ Patron Ltd. 15.13
Services
City of Shanghai; Jin Jiang
International (Holdings) Co., Ltd.; Radisson Hospitality Consumer &
13-Nov-2018 342.23
Radisson Hospitality AB /Private AB Retail
Group/; SINO-CEE Fund
SINA Corp.; Yunfeng Financial
Group Ltd.; City-Scape Pte Ltd.;
Giant Investment (HK) Ltd.; Ant
Financial Services Group Co., Ltd. Financial
16-Nov-2018 MassMutual Asia Ltd. 1,641.01
(Hong kong); Massmutual Asia Ltd. Services
/Private Group/; Meyu International
Co., Ltd.; Sheen Light Development
Ltd.; Harvest Billion International Ltd.
Ruth Voith,
17-Nov-2018 Eurocrane (China) Co., Ltd. Beteiligungs- Logistics -
gesellschaft mbH
Ruth Voith
17-Nov-2018 Eurocrane (China) Co., Ltd. Logistics -
Holding-GmbH
EDP-Energias de Portugal SA; China Macquarie Construction
22-Nov-2018 Three Gorges Corp.; Hydro Global Development Corp / & Engineering -
Investment Ltd. CO Subs (2)/ Service
The Natural Pet Treat Consumer &
26-Nov-2018 Yantai China Pet Foods Co., Ltd. -
Co., Ltd. Retail
Zeal Pet Foods New Consumer &
26-Nov-2018 Yantai China Pet Foods Co., Ltd. -
Zealand Ltd. Retail
CPFL Energia SA; Government
of China; State Grid International CPFL Energias
26-Nov-2018 Energy 1,287.33
Development Co., Ltd.; State Grid Renováveis SA
Brazil Power Participações Ltda.
Mingma Shanghai Biotechnology Genomics Medicine
27-Nov-2018 TMT -
Co., Ltd. Ireland LtdAppendix
Target Transaction
Date Acquirer Target country Industry value (US$m)
Benchmark Trade Financial
27-Nov-2018 Brighten Ocean International Ltd. 12.80
Ltd. Services
Construction
Zoomlion Heavy Industry Science & Wilbert TowerCranes
30-Nov-2018 & Engineering -
Technology Co., Ltd. GmbH
Service
MMG Laos Holdings
30-Nov-2018 Chifeng Jilong Gold Mining Co., Ltd. Energy 274.97
Ltd.
CDH Investments Management
(Hong Kong) Ltd.; Hony Capital
3-Dec-2018 (Beijing) Co., Ltd.; Playtika Ltd.; Wooga GmbH TMT 100.00
Shanghai Yunfeng Investment
Management Co., Ltd.
Hakim Health Technology Co., Ltd.;
Hakim International Development Golden State
4-Dec-2018 Healthcare 33.51
Co., Ltd.; Golden State Medicare Medicare Health Plan
Health Plan/ Private Group/
Sequoia Capital India Advisors Pvt
Ltd.; Zhejiang Ant Small & Micro
Financial Services Group Co., Ltd.;
TechEagle
5-Dec-2018 Zomato Media Pvt Ltd.; Vy Capital TMT -
Innovations Pvt Ltd.
Management Co., Ltd. (Venture
Capital); Info Edge India Ltd. /
Venture Capital/
CodeMonkey
5-Dec-2018 TAL Education Group TMT 20.00
Studios, Inc.
Ezbuy Holding Co.
10-Dec-2018 LightInTheBox Holding Co., Ltd. TMT 85.55
Ltd.
KADI Technologies
15-Dec-2018 BORQS International Holding Corp. TMT 9.75
Ltd.
Zhuzhou Cemented Carbides Group Industrial,
18-Dec-2018 Corp. Ltd.; Zhuzhou Cemented HPTec GmbH Machinery & 21.30
Carbide Cutting Tools Co., Ltd. Components
26-Dec-2018 Hangzhou Venus Medtech Co., Ltd. Keystone Heart Ltd. Healthcare 100.00
Technosoft Motion
26-Dec-2018 Shanghai Moonsʼ Electric Co., Ltd. TMT 31.54
AG
China National
Qingdao Tianhua Institute Financial
28-Dec-2018 Chemical Equipment 942.69
Chemistry Engineering Co., Ltd. Services
Luxembourg SARL
OAKLINS – Voice from China · March 2019 13Deep local roots, global commitment Oaklins brings you opportunities from across the world and we meet you with our expertise wherever you are Oaklins disclaimer This report is provided for information purposes only. Oaklins and its member firms make no guarantee, representation or warranty of any kind regarding the timeliness, accuracy or completeness of its content. This report is not intended to convey investment advice or solicit investments of any kind whatsoever. No investment decisions should be taken based on the contents and views expressed herein. Oaklins and its member firms shall not be responsible for any loss sustained by any person who relies on this publication. © 2019 Oaklins. All rights reserved. Oaklins is the collective trade name of independent member firms affiliated with Oaklins International Inc. For details of the nature of affiliation please refer to www.oaklins.com/legal.
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