In this episode of China Money Podcast, guest Anthony Siu, managing director at Robert W. Baird & Co., discusses Chinese cross-border M&A, what challenges Chinese companies face when doing deals overseas and how they can handles those challenges.
Listen to the full interview in the audio podcast, or read an excerpt.
Q: Your firm focuses on middle market with transaction volume between fifty to 500 million dollars. And your focus is Chinese cross-border deals. Are you optimistic about this kind of deals in the current market?
A: Yes, I’m very optimistic. In fact, we are spending majority part of our time working on cross-border deals between China and the U.S., and China and Europe. For Chinese companies, particularly those looking for advanced technologies, it makes a lot of sense (to look at these kind of deals).
Q: So Chinese outbound M&A deal in 2011 was about 43 billion dollars, and that’s up 12 percent from 2010. What’s your outlook for this year?
A: Over the years, the growth has been around high single digits to low double digits. I expect that number will not change. We will see a tilt toward outbound side, where Chinese companies acquiring businesses overseas.
In the past seven or eight years, we saw big deals in the natural resources, metals and mining sectors. We will see a diversification from these sectors to consumer and technology sectors.
Q: There have been a number of instances, where a Chinese company either failed to close a deal, dropped the deal, or couldn’t secure financing. Are these kind of instances hurting Chinese companies’ chances overseas?
A: Nowadays, it’s very common for a seller to run a sell-side auction process, which targets a wide group of potential buyers. Chinese companies are only a subset of this global buyer universe. So that means any buyer’s chance to have a closing will be smaller than if it’s a one-on-one transaction situation.
I don’t think that only Chinese companies have a low probability of closing. But having said that, Chinese companies do face some challenges. One is the physical distance. Second is that the Chinese companies use a different type of valuation method.
Then, we see some deals are done in a hurry without proper due diligence. Maybe the leadership at the Chinese company has a vision for international expansion. It’s very typical for deals to be done with a handshake.
Q: What do Chinese companies need to do to improve, and how long will it take for them to become mature dealmakers?
A: The bigger Chinese companies will have a steeper learning curve. They will be very much up to speed. I don't think it will take a decade. It may take three to five years.
For the smaller companies, it may take longer for them to learn the process. But as in all things, the Chinese learn very rapidly. I don’t think this will be different.
About Anthony Siu:
Anthony Siu is managing director at Robert W. Baird & Co. Based in Shanghai. He is the head of Asia investment banking at Baird. Prior to Baird, Siu was a director of corporate advisory at Standard Chartered Bank, responsible for cross-border M&A transactions in China.