China: Selling Your Company to the Chinese, Buying a Chinese Company
I recently got back from a trip to China. We have one client, a global consumer product company, with headquarters and a factory in China that is looking at their options for selling the company. We have another client, with 100% of the business in Northern California, that is in serious discussions with an investor from China with deep pockets.
The trip itself was fantastic. I started in southern China in the industrial city of Shenzhen near Hong Kong, and ended in Ningbo, a few hours from Shanghai in central China. The people were friendly, the food was wonderful and the smog was as expected - bad. The vast number of building cranes rising above the horizon, new freeways and fast trains really drives home the point that although China is very old, much of the infrastructure is brand new.
Selling Your Company to the Chinese
International investors, including those from China, are currently looking for investments that take advantage of under-valued assets in the US. That means about anything that has to do with real-estate and development. Manufacturing is also always of interest to Chinese buyers if it involves something that can be made in China (reduce costs) or represents an emerging market in China (increase revenues). If you have a business that makes sense for the Chinese market, we'll market it in China as part of our sell-side services.
Sometimes you don't need to explicitly market in China. For example, although we have a Chinese presence for marketing in China, we found the current wealthy Chinese investor that is looking at a client through his representative in the US. In other words, this Chinese buyer has agents in the US looking for opportunities.
Buying a Chinese Company
Not for the faint of heart, buying a Chinese company really only makes sense for the strategic buyer (e.g. buying manufacturing capability) or a private equity group with the resources to deal with the complexity of an international acquisition. For example, we saw a tractor parts contract manufacturing plant in Shenzhen that had recently been acquired by a US tractor company.
It may not be a bad time to look at an acquisition in China if you keep your eyes open. The business owners I talked to there are more realistic about what their company value may be. A few years ago I can imagine they felt invincible, but they now feel many of the pressures of the current environment. New labor laws and the general expectation of higher wages are increasing labor costs. You use to almost count Chinese labor as almost "free" when considering different manufacturing operations (such as part cleaning or painting) but that is no longer the case. Real estate value has skyrocketed (even though citizens can not own land, they can own a 70 year lease), so many businesses are feeling the pressure of rising occupancy costs. For example, many manufacturing facilities are being pushed out further and further from the city centers (the doctrine of "highest and best use" is alive and well in China). Finally, there is international pressure to force China to allow its currency to naturally float and devalue, and business owners know that will affect their ability to compete.
It is indeed a global market, and we will increasingly be seeing international owners of US companies, even modestly sized ones, and US companies will increasingly be looking beyond our borders for investments and acquisitions.
