How to make your European acquisition a success
Appetite from China’s top corporates to acquire companies in Europe has never been so strong. Chinese outbound M&A reached record levels in 2016, with 372 deals totaling more than $200 billion notched up. According to Clifford Chance, in Europe alone deal values jumped 223% in 2016.
Much has been discussed about what motivates Chinese executives to target European companies. Europe is a mature market growing at a controlled rate, and there are numerous strategic reasons to want to access it.
“From what I have seen, Asian FDI is often pursued with the view to acquiring stable businesses, with seasoned management teams and sophisticated technology,” said Jeroen Bakhuizen, HSBC's regional head of international subsidiary banking for Europe.
China’s expansionary policy is only set to continue: 2016 saw $14.53 billion worth of outbound investment in infrastructure projects to support the Belt and Road Initiative (BRI). The BRI will cover 63% of the world’s population, accounting for 29% of global GDP, and presents an exciting opportunity for Chinese firms to enter Europe and beyond.
If a European acquisition spans multiple jurisdictions it will be worthwhile exploring foreign exchange management, cash pooling and trade finance. HSBC’s universal banking model enables the needs of all customer types to be met, and their global network provides a presence at both ends of major trade routes around the world.
As CT reported in April, the People’s Bank of China informed financial institutions they were no longer under pressure to secure inbound Renminbi (RMB) or limit outbound RMB payments, a mandate they had been subject to since late 2016. Accordingly, much of the capital and trade flows from BRI are to be transacted in RMB. Voted the best offshore provider of RMB five years running, HSBC is therefore ideally placed to support these European investments.
Utilising its footprint in 33 European markets, HSBC has shown itself to be flexible when aiding in the structuring of Chinese expansionary investment, particularly in the technology sector. Recent deals include cross border lending: releasing renminbi cash at the parent level to aid in the working capital needs of European subsidiaries, and complex multi-jurisdiction receivables finance solutions.
Here are some simple take-homes to consider when investing in Europe:
- Navigating the European Union. It is important to get a solid grip on the many EU rules before entering into outbound investments. Be sure to work with experienced advisors to reduce the risk of disruption
- Financing your M&A. It is important Chinese enterprises are transparent about how they will fund the acquisition and where those funds will be sourced
- Post-acquisition. Advice should be sought on integrating a new business. When operating in a new region, it is important to build sustainable banking partnerships to ensure operations are functioning effectively
- Operational risks. Once the M&A is complete, the story doesn’t end there. Consider the management of foreign exchange, cash, and trade finance needs as your new business develops.
“We saw lots of activity in Asia last year and are seeing more so far in 2017,” remarked Bakhuizen. “It’s clear these companies are hungry and want to accelerate their learnings and cross-border strategies. They know European companies can offer a great platform for international growth. This is true, but it needs to be carefully managed.”
European Head of International Subsidiary Banking, Europe