First, be confident

By George Chen
September 2, 2009

As China Inc shops for assets almost everywhere across the planet, some people know what they want. Others are just hurrying to grab some company that’s become undervalued during the global financial crisis.
 
At the Reuters China Investment Summit in Hong Kong, we asked one of JPMorgan’s top deal advisers — Brian Gu, head of M&A for Greater China — if he had any suggestions for cash-rich Chinese. His answer was simple: First, be confident.
 
    “For any M&A, they need the confidence that they aren’t getting into anything that’s messy. They have to demonstrate strong integration and a capability to absorb those assets,” said Gu, a biochemist-turned investment banker.
 
    “A lot of companies want to make minority investments because they just don’t have the confidence to handle a full-blown integration.” Instead, he said, companies are taking a phased approach — buy 20 percent, send some representatives to get to know the managers and then make the decision later on whether to buy the whole company.
 
    In fact, not many Chinese overseas acquirers have shown much confidence, including Lenovo — whose chairman once said that it may take years to see whether the purchase of IBM’s PC business would succeed — and China Minsheng Banking Corp. Minsheng bought a minority stake in UCBH and the shares of the American company sank during the financial crisis.
 
    Gu was unenthusiastic about Chinese companies buying into distressed assets. “With distressed transactions, it’s easier to see them buying into simpler assets, such as natural resources or large capital equipment assets”, he said, adding he believes China Inc knows how to value and operate natural resources better than other, more complicated businesses.
 
    “(Chinese companies) don’t have to be involved in turning around a distressed company. That’s why you see a lot of action in those sectors rather than making bold moves where you buy big operations that involve hundreds of thousands of employees.”
 
    Just months ago, a little-known Chinese company called Tengzhong surprised markets with its plan to buy GM’s troubled Hummer unit. The deal is now still subject to final agreement between Tengzhong and GM as well as Beijing’s approval.
 
    Now, the question for Tengzhong — is it confident it can succeed with Hummer where GM has already failed?

Photo Caption: Brian Gu, JP Morgan’s head of M&A for Greater China, speaking at the Reuters China Investment Summit.

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