With the growing of domestic companies and the influence of globalization, more and more Chinese companies have turned their sights to the overseas market in 2012. Meanwhile, the European debt crisis also provides a chance for domestic companies to step onto the stage of international M&A. According to the statistics of China Venture, there were 230 published cross-border M&A cases, which accounted for 9.36% of total M&A cases; the size of the transaction was $36.63 billion and accounted for 28.75% of the total amount. Apart from the fields which are continuously dynamic like energy and resources, cross-border M&A in consumption and manufacturing industries are becoming more active. The report of “China’s Overseas M&A in 2012” released by Deloitte also shows that the amount of overseas M&A investment in the first three quarters has increased by 16.2% and reached $52.2 billion, which created the highest record since 2005.
Some innovations during the operation process have also been made in cross-border M&A in order to avoid relevant obstacles. The transaction of Joyson Holding acquiring German company Preh was divided into two stages: stage 1 was Joyson Holding acquiring Preh; and stage 2 was Joyson Holding injecting capital from Preh into Joyson Electronics. Due to the high uncertainty of overseas acquisition, Joyson Electronics did not participate directly in the first stage. Instead, Joyson Holding took part in acquiring negotiation, due diligence and financial contribution for delivery. Under the circumstance of overseas financial crisis, this can effectively help the listed company avoid the direct risk of overseas acquisition. On the other hand, since the size of the target company was quite big, there would be a rather big funding gap if the listed company acquired directly by cash. Besides, important investment decisions in a listed company are restricted to the complicated internal decision-making process and to the external regulatory approval, thus the best timing for M&A may easily slip away in the treacherous market. So the acquisition by the controlling shareholder first will add much to the possibility of success of the transaction.
In the first stage, Joyson Holding acquired the majority of the shares of the target company and commissioned the listed company to take charge of its operation. At the same time, both Joyson Holding and the counterparty of the transaction agreed that the price of the remaining shares should be decided by the following business performance of the target company. After the target company has been operating stably under the control of the controlling shareholders for a period of time and has become a high quality company with low operating risk, then it can be finally injected into the listed company. The acquisition transaction between Joyson Electronics and Preh was carried out mainly by issuance of shares and partly by cash, together with the supporting financing. This case provides a new method of overseas M&A for listed companies. The target company is first acquired by the controlling shareholders of the listed company. Then the listed company injects these overseas assets into itself through private placement to the controlling shareholders.
“Going out” will be a major method for Chinese listed companies to participate in international competition and realize leaping development for a certain period of time in the future.
This article is extracted from New Wealth:
