Counter cyclical cross-border mergers and acquisit

2022-09-20
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Weichai Power: countercyclical cross-border mergers and acquisitions of construction machinery enterprises

Weichai Power: countercyclical cross-border mergers and acquisitions of construction machinery enterprises

China Construction machinery information

Guide: less than a year after the acquisition of Ferretti, an Italian luxury yacht manufacturer, Tan Xuguang, chairman of Weichai Power, is still not satisfied. On September 3, Weichai Power announced that it would officially take 5% of the equity of Kaiao group, the world's second largest industrial forklift manufacturer, and bought Linde hydraulic under Kaiao

less than a year after the acquisition of Ferretti, an Italian luxury yacht manufacturer, Tan Xuguang, chairman of Weichai Power, is still not satisfied

on September 3, Weichai Power announced that it would officially take 5% of the equity of Kaiao group, the world's second largest industrial forklift manufacturer, and buy 70% of the equity of Linde hydraulic company under Kaiao. This transaction involved a total of 738 million euros, making it the largest investment case of Chinese enterprises in Germany. Accompanied by the theme song "the Imperial March" of the movie "Star Wars", Tan Xuguang can be a "Jedi Knight"

from Italy to Germany, from top luxury yachts to world-class hydraulic and forklift industry resources, Tan has spent nearly 9billion yuan in just eight months, but Tan Xuguang said that he bought all his own funds and only used less than half of the group's cash flow. "This is not the whole of our internationalization strategy". Tan told Global Entrepreneur. Look at his report card - 467million euros bought 25% shares of forklift manufacturer Kaiao, and paid another 271million euros to buy 70% shares of Linde hydraulics, a subsidiary of Kaiao that focuses on high-end hydraulic systems. Just six days ago, Tan also announced the completion of the strategic reorganization of Ferretti. Tan invested 374million euros in Ferretti and owned 75% of its controlling stake

the above radical measures are bold. At present, the construction machinery industry is experiencing a "cold winter". In the first half of 2012, the total profit of the industry decreased by 19.85% year-on-year. Weichai was not alone. Its report for the first half of 2012 showed that the company's revenue was 27.1 billion yuan, a year-on-year decrease of 26.12%, and its net profit was 1.897 billion yuan, a year-on-year decrease of 45.82%. "Our performance is in decline, but as the whole industry, in such an environment, I think Weichai Power has reflected its core competitiveness." Tan said calmly

the real estate purchase restriction policy has made the construction industry slam on the brakes - as the world's largest construction market, the real estate market has always been one of the key drivers of the demand for construction machinery. Although the government recently approved public investment projects such as railways, ports and highways with a total amount of up to 1trillion yuan, the industry generally believes that the demand for construction machinery will not recover until the first quarter of 2013. Morgan Stanley even significantly lowered the stock price expectation of Weichai Power, and the target price was significantly reduced to facilitate material research and was adjusted from 28% to 18 yuan

Tan's adventure

however, Tan still chose to reverse the cycle. The European debt crisis is constantly lowering the valuation of target companies in Chinese buyers' shopping carts, which is tantamount to a dose of aphrodisiac. At the beginning of the year, Sany Heavy Industry acquired Putzmeister, Germany, and then Guangxi Liugong acquired the construction machinery division of HSW, Poland. XCMG is negotiating to purchase schweiying, the world's second-largest concrete machinery manufacturer. Zero2IPO data shows that in the first half of 2012, the Chinese market completed the experiment of driving precision screw pairs. Among the 422 mergers and acquisitions, the machinery manufacturing industry took the lead, completing 50 mergers and acquisitions, accounting for 11.8%. Take Kaiao as an example. In 2006, KKR group and Goldman Sachs valued it at 4billion euros, and the current liquidation price is less than half of the market price

compared with the previous focus on the acquisition of bulk commodities. Current transactions are increasingly focused on manufacturing technology and brands. In the past 15 years, China has rapidly developed into one of the global manufacturing powers, and its share of global manufacturing output rose from 17.7% in the previous year to 19.9% last year. In terms of output, China has surpassed the United States to become the world's largest manufacturing country, ahead of Germany and Japan. Weichai is the best reference for the above process. Weichai, which started with the introduction of Surveying and mapping, drawing and assembly, and the improvement of the Shanzhai model, had a sales volume of only 770 million yuan in 1998, but increased by 126 times to 98.3 billion yuan in 2011. What is more remarkable is that this kind of experimental machine has the speed range of conventional electronic universal experimental machine, and the wider the speed range is the stronger cross-border integration efficiency of Chinese companies. Weichai's restructuring of Faraday took only five months, and its bank liabilities fell from 760 million euros to 116 million euros. Tan, the negotiator with Keao, spent only four months

professional manufacturing capabilities go hand in hand with numbers and efficiency. Claudio facchin, President of ABB China, said that the overall level of manufacturing capacity in China, measured by factors such as the quality of local suppliers and the difficulty of obtaining top-level design professional services, is currently about 75% of that in Germany, compared with only 50% five years ago

large scale industrial integration will also be greatly intensified. According to the data of off Highway Research in London, the sales of construction machinery in China accounted for more than one-third of the global market (with a total value of US $110billion) in 2011, about twice the global revenue of us construction machinery giant caterpillar of US $60billion. However, this market is occupied by more than 1700 uneven companies, whose individual size is too small - Taking Weichai as an example, its sales revenue in 2011 was about a quarter of that of caterpillar

profit is more criticized than scale. Although the compound growth rate of the sales revenue of the construction machinery industry has reached more than 20% in the past five years, 70% of its profits have been contributed to foreign high-end parts and components suppliers, and Chinese host manufacturers have earned only a fraction. Take 6-8 tonnage loaders as an example. The price of each caterpillar loader is 30-50% higher than that of domestic brands

the reason lies in the technological gap. In the 12th Five Year Plan for the development of construction machinery industry, it is also said that its key supporting components with high technology and high added value are still imported, and the average price of transmission components, control components, diesel engines and key hydraulic parts is more than 80000 US dollars per ton. The core supporting parts enterprises in the construction machinery industry are all foreign-funded, such as engine brands Cummins, Isuzu, Yokoma, Kubota, and hydraulic systems are Kawasaki, Bosch Rexroth, etc., which are unwilling to sell to Chinese enterprises. Chinese enterprises still acquire foreign brands that are in the second tier or even the third tier in terms of core accessories

fortunately, time is more on the side of Weichai people. S & P predicts that the sales revenue generated by most large Chinese construction machinery manufacturers in overseas markets will account for 30% of the company's revenue in the next three to four years. In the first half of 2011, the proportion was only 10%. What is more amazing is the appetite of Chinese buyers. PricewaterhouseCoopers data also showed that the number and amount of overseas M & A transactions of Chinese enterprises in 2011 reached a record, with 207 transactions, amounting to US $42.9 billion. In 2012, the momentum of mergers and acquisitions has become more intense, and many of the acquisition targets are world-class enterprises. Take Kaiao as an example. It is the leader of the European industrial forklift market and the second largest industrial forklift manufacturer in the world. Faraday is the largest luxury yacht manufacturing company in Europe, and its yacht brands occupy four of the world's top ten yacht brands

overseas mergers and acquisitions will make the competitive advantages of Chinese companies more obvious - huge domestic demand market and cost advantages, top brands, and complete sets of manufacturing technology for core components

take the hydraulic parts that are the biggest constraint in the construction machinery industry as an example, the consumption in the Chinese market accounts for about 20% of the world. However, because the service life of domestic hydraulic parts is only 10% to 30% of that of imported or foreign-funded enterprises, the hydraulic parts required by excavators, bulldozers, pump trucks, rotary drilling rigs, pavers, etc. are basically monopolized by Bosch Rexroth, Eaton, Kawasaki, etc. A survey data confirms that among the domestic supporting parts to be matured, hydraulic parts account for 88%, of which high-pressure hydraulic system accounts for 52% and variable hydraulic system accounts for 36%, which is twice as high as the second engine parts. Sany had hoped to develop this field independently, but had to stop because of the large technological gap. Weichai will change all this by acquiring Linde

force deformation

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