M&A

Picking up pace

Shandong Heavy buys forklift firm in China’s largest German acquisition

Earlier this year Chinese heavy equipment manufacturer Sany Heavy Industries acquired German concrete pump maker Putzmeister.

A day after the deal was signed, hundreds of Putzmeister employees protested outside company offices in Stuttgart, fearing layoffs.

“They’ve sold us down the river overnight,” one trade unionist told Reuters.

A staff protest is hardly an auspicious start to an acquisition, which could be why Tan Xuguang, chairman of Shandong Heavy Industry Group, has been careful in framing China’s latest foray into the Germany corporate world.

“I don’t like the word ‘M&A’,” Tan told the Financial Times. “I always call it ‘strategic cooperation’.”

But Tan’s cooperative instincts are now being acutely focused on German forklift truck maker KION, in which Shandong Heavy is purchasing a 25% stake for €467 million, via its Hong Kong-listed subsidiary Weichai Power.

In addition, Weichai Power will pay another €271 million to obtain a 70% stake in Linde Hydraulics, a KION subsidiary that makes advanced hydraulic systems.

Although it accounts for less than half of the transaction value, the Linde acquisition is attracting the greater attention.

Hydraulic control systems (pumps, motors and other hardware in drive systems) have proved to be a bottleneck in the development of China’s domestic capital equipment industry, and the country is overdependent on hydraulics imports, spending Rmb30 billion ($3.87 billion) in 2011.

Building up a strong hydraulics business is at the core of Shandong Heavy’s strategic reorganisation, reports 21CN Business Herald, with a goal of reaching annual sales of Rmb10 billion within five years.

The purchase of an established European brand helps with another five-year timetable – namely Beijing’s 12th Five-Year Plan, which aims to reduce China’s dependency on importing foreign hydraulic components.

This isn’t the first European deal that Shandong Heavy has undertaken this year. In January the company paid €178 million for Italian yacht maker Ferretti, another transaction designed to bring foreign technology into the domestic market.

Acquiring two companies in such different industries might give the impression that Shandong Heavy is on an acquisition binge. “Some people seem to think it is a stretch to go from yachts to forklifts but in fact they are both extensions of Weichai as a power component business,” Tan told the FT.

Shandong Heavy also hopes that the Linde acquisition will help it boost sales to existing customers, including large manufacturing groups such as Caterpillar and Volvo.

The company is also making a case that putting together the best of Germany and China creates a formidable force.

“Everybody knows what ‘Made in Germany’ means,” a Weichai executive told the media at a news conference announcing the deal. “We are deeply convinced that combining it with the capital and markets of China will achieve a win-win result for both parties.”

More broadly, the Shandong Heavy deal with KION is another indication of a pick up in Chinese investment in Germany. This single deal exceeds China’s full investment in Germany just two years ago. More opportunities may also present themselves, especially among the midsize Mittelstand companies at the core of the local economy.

Of course, in the past, many of these firms have been opposed to striking deals with Chinese counterparts.

“There were concerns that, like American companies and some venture capitalists, the Chinese will suck a company dry, take the filet pieces out and then dissolve it,” the head of a Mittelstand trade organisation told Bloomberg Businessweek in June.

If the size of the Sany and Shandong Heavy deals are anything to go by, it appears that Germany is now more open to Chinese investment.

The wider deal flow indicates it too: 21 Mittelstands have been acquired by Chinese companies in the 18 months to June.


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