Eurasian Consulting’s Huanping Zhang interviewed by German communications consultancy Instinctif Partners

The following content is translated from the interview published on the website of the German PR company Instinctif Partners on August 11, 2016:

Carsten Böhme: For a long time, the German public had largely overlooked Chinese-German merger and acquisition deals. Now, with the cases of Kuka and Frankfurt-Hahn Airport, the situation has undergone a dramatic change. What does this mean for future merger and acquisition transactions?

Huanping Zhang: In 2016, there was indeed a significant increase in both the number and scale of Chinese investor M&A transactions. Public interest in these transactions also grew. We expect that in the coming years, there will be larger transaction volumes with increasing deal sizes, which will enable better complementarity between the Chinese and European markets.

Fear is often born of ignorance. What are the goals of investors? How will he lead the company, and where will he take it? Without answers, stagnation ensues. However, how great are the differences between the business worlds of China and Germany, in reality?

Typically, Chinese enterprises exhibit a more pronounced hierarchical structure. In Chinese companies, the personality and style of managers have a more significant impact on the business, unlike European companies, which place greater emphasis on the organization. Managers in Chinese enterprises are usually able to respond quickly to changes in the business environment and place a strong emphasis on results. Additionally, many Chinese businessmen display a relatively higher risk tolerance.

What are the key factors for the success of Sino-German mergers and acquisitions?

For cross-border mergers and acquisitions, open communication and the ability to put oneself in the other party's shoes to consider issues are crucial factors in achieving success. Based on our experience as M&A advisors, Chinese investors who can make swift decisions and complete transactions quickly usually find the process easier to succeed. Due to a lack of knowledge about M&A, Chinese investors absolutely need an excellent advisory team, including M&A advisors, due diligence teams, and legal advisors.

So, what are the common mistakes that can be avoided?

First, from the seller's perspective, one must never underestimate the negotiating partners from China. It is best not to mention any biases towards Chinese buyers. Typically, Chinese buyers are very sensitive to accusations of a lack of technology or inadequate protection of intellectual property in China. Second, European investors generally aim to deepen the value chain, while Chinese strategic investors are more interested in expanding value into other sectors. In this regard, new market entrants as strategic investors often achieve very positive results. Furthermore, one should not hold biases against Chinese private enterprises. Private enterprises usually have more efficient decision-making processes compared to state-owned enterprises. Finally, patience is crucial in negotiations with Chinese investors. Overly aggressive negotiations can raise alarms with Chinese buyers, making them wary of falling into a trap.

So far, Chinese investors have shown a cautious and restrained attitude in German business communications. How do you explain this?

Chinese entrepreneurs have very little experience in handling public relations. Their fear of communication actually leads to a lack of it. Nevertheless, with the increasing professionalism of Chinese mergers and acquisitions and rising public awareness, as well as support from professional media advisors, we believe that the behavior of Chinese investors will change.

How have owners of German medium-sized enterprises responded to acquisition interest from Chinese investors? Have they always been willing to engage in dialogue?

In the past, especially before the 2008 financial crisis, German medium-sized enterprises were very wary of engaging with Chinese buyers. However, at the same time, this fear was significantly alleviated thanks to many positive merger and acquisition projects. In fact, Chinese buyers demonstrated a high level of social responsibility towards their German employees. Among European companies that implemented collective layoffs, there was almost no involvement from Chinese investors. Chinese buyers generally continued to use the existing management and made relatively minor changes within the company. We observed that, due to Chinese buyers often offering above-average prices and ensuring the company's future stability, German medium-sized enterprises were increasingly willing to engage in conversations with Chinese investors. Nevertheless, certain prejudices and fears still persisted, and the best way to dispel these prejudices and fears was through face-to-face conversations, such as during a refined business dinner.