How should Chinese automakers make a successful overseas M&A?

Jeff Herrmann

Partner
Global Automotive Leader
Advisory
PricewaterhouseCoopers 

Gasgoo.com: What strategy can Chinese automakers use to grasp the opportunities for growth  in  the  domestic  market?  Should they give priorities to overseas mergers  and  acquisitions  (M&A)?  And what benefits will they get through overseas M&A?

Jeff Herrmann: The  key  to  growth  is either through an active look at their current porfolio, or the ability to develop and market new platforms that appeal to Chinese consumers.   The Chinese consumer are becoming very discerning regarding the quality and look of their cars. Overseas acquisitions are one consideration. They should only be completed if an appropriate strategy has been developed, or if there is a solid technology that can be quickly assimilated  back to China. In the case of a brand acquisition, they will get ready access to new vehicles, IP, and engineering know how. In the case of parts, they get access to the latest IP that they can quickly apply back to vehicles in China, along with engineering and development capabilities.

Gasgoo.com: How  could domestic automakers raise the necessary fund for M&A? Is it possible  for  them  to join hands with any investing companies on overseas acquisitions? What are the financing options for M&A abroad?

Jeff Herrmann: Many  are  raising  funds through their association with municiple and provencial  government structure.  Many of the cities and provences look at auto  as  a  key industry to invest in and utilize current companies within the  jurisdication to execute deals. We are also seeing companies beginning to  team  with  private  equity  to  execute  deals.  PE  brings saavy deal experience,  along with an ability to help Chinese companies manage western assets.  Most are looking at potential off shore structures to help finance the  deal.   The  challenge that most Chinese companies have is getting the necessary  approvals  to  utilize on-shore funds to execute overseas deals, and the approval often takes a long times.

Gasgoo.com: Even  these  Chinese  automakers succeed in acquiring overseas assets, what  strategies can they adopt to integrate those assets into their own business so as to avoid a failure of SAIC and Ssangyong’s kind?

Jeff Herrmann: The key is to quickly migrate intellectual property and engineering and development capabilities back to China so that they cna quickly utilize the new technology to manufacture new cars. Setting up China based engineering centers that are staffed with a compliment of ex-pats if very important.

They also want to ensure that they actually are purchasing the IP associated with the new company, thus protecting them selves if something goes wrong.

Gasgoo.com: What are the general steps for Cross-border M&A? And what are the key points for success?

Jeff Herrmann: First, develop a strategy that includes clear target of the type of companies that you want; Second, once you have a strategy, get pre approval by key stakeholders so that you  can move quickly (often speed of deal execution is a differentiating factor for a deal); Third, team with knowledgeable advisors to help put together a tactical plan, and provide due diligence and  deal execution support; and Fourth, consider what you need to do post deal, and this includes determining the management team for the new entity.