Pay attention to the hot global mergers and acquisitions. How can Chinese enterprises follow the trend?

In the first quarter of this year, the scale of global M & A transactions has exceeded the US $trillion mark for the third consecutive quarter, and the global M & A transactions are still rising all the way in the second quarter. Although the global M & a data in the third quarter of this year has not been released, according to the data previously released by Dealogic data and other institutions, the global M & a transaction volume this year is very considerable, and the world has entered the hot period of M & A again. Digitization and carbon reduction are hot areas of M & A. the scale of M & A in science and technology industry, automobile and truck transportation, insurance, leisure and entertainment, metal, publishing and transportation is also very considerable.

Chinese enterprises have also played an important role in this round of global M & a fever, and some typical cross-border M & A cases have emerged: at the beginning of March this year, Hisense appliances subscribed to Sandian holdings, a Japanese automobile air-conditioning enterprise; Aland health Holding Co., Ltd., a provider of nutrition and health solutions, recently announced that it has completed the wholly-owned acquisition of an OTC manufacturer in Canada; According to the data released by Ernst & young, in the first half of 2021, the amount of overseas mergers and acquisitions announced by Chinese enterprises in Europe was US $10.41 billion, a year-on-year increase of 210%.

M & A is the process of economic restructuring

Four reasons give birth to M & a fever

Why is there a global M & a fever when the epidemic continues to affect the operation of the global economy? Su Jingxiang, former researcher of China Institute of modern international relations, explained in an interview with China trade daily that M & A is a process of economic restructuring, which often occurs during economic depression or changes in economic structure. During this period, the number of Enterprise Bankruptcies increases, and the restructuring will be completed by means including mergers.

In an interview with China trade news, Xiao Wen, a professor, doctoral supervisor and special professor of Qixin in the school of economics of Zhejiang University, analyzed and believed that four major reasons gave birth to the global M & a fever.

First, in 2021, economic uncertainty has weakened and macroeconomic indicators have improved. Domestically, the recovery of macroeconomic indicators such as China's GDP and consumer price index has greatly stimulated M & A transactions. Internationally, some enterprises, especially large multinational enterprises, are full of confidence in economic recovery. For example, in PwC's 24th Annual Global CEO Survey (2021), 76% of chief executives (CEOs) expect the global economic situation to improve in the next 12 months.

Second, a relatively loose monetary policy. In 2021, the global interest rate remained low, which greatly reduced the financing cost of enterprises and promoted the expansion of enterprises. Specifically, private equity fund (PE) financing remained active, with more than US $1.9 trillion in capital reserves, and the total purchasing power with other capital reached a new high. At the same time, affected by the epidemic, some enterprises are on the verge of bankruptcy, cash flow is tight and value is low, which also provides a good M & A environment for private equity funds.

Third, most of the share prices in the global stock market rose, and the valuation of listed companies increased. Investors of listed companies often encourage the management to use idle capital resources for investment or acquisition to increase operating profits. Now more and more transactions are financed by stocks. Therefore, enterprises have sufficient capital and confidence to carry out M & A activities.

Fourth, new M & A models are emerging. For example, the emergence of American capital market spac model (special purpose M & a company model) has greatly facilitated M & A among companies. According to statistics, there are still 400 spacs that have not found suitable targets. The total amount of cash and leverage used by these companies for future transactions is as high as US $500 billion. This reflects the adequacy of capital market funds and is also one of the main reasons for the emergence of M & a fever.

Chinese enterprises should pay attention to capability driven transactions

Beware of industries where subsidies will be eliminated

For the current situation of Chinese enterprises and how to make a difference under the global M & a boom, the interviewed experts and business people gave their own observations from different angles.

Su Jingxiang believes that only those in danger are organic. The epidemic has a negative impact on the global economy, but there are asset trading opportunities for some large Chinese enterprises.

Mr. Feng, who has worked in the iron and steel industry for a long time and now works at Shanghai Steel Union Research Institute, observed that this year, iron and steel enterprises are still going abroad, but the direction has changed, mainly in the upstream resource field, and cross-border M & A activities are guided by the energy conservation and consumption reduction policy. "One of the hot spots of overseas investment is resource-based projects. For example, iron ore containing 60% iron element was originally imported, but now pellets are imported. Pellets have gone through a round of smelting abroad, which can reduce energy consumption. Many pellet plants in Iran are controlled by Chinese people," Mr. Feng said, "Of course, iron and steel enterprises want to acquire foreign mines, but there are some difficulties in realizing it. Some steel mills not only acquire iron making projects, but even make steel abroad. They first make steel billets abroad, and then import them to China. After that, they only need a heat treatment, so the carbon emission is lower."

"With the increasingly complex challenges faced by enterprises, more types of M & A transactions will occur. We should pay attention to the risk prevention and strategic upgrading of M & a while actively promoting the internationalization of Chinese enterprises." Xiao Wen believes that from the perspective of risk prevention, some industries that continue to be impacted may face liquidity adjustment, especially industries in which government subsidies will be phased out in the next few months, such as tourism, catering and other industries, which may lead to more mergers and acquisitions or mergers and acquisitions of non-performing assets. Chinese enterprises should pay attention to risk prevention during mergers and acquisitions.

From the perspective of M & a strategic transformation, Xiao Wen said that it is expected that global M & A will further shift to capacity driven transactions with the greatest return potential. Under the circumstances of great uncertainty in the epidemic and sluggish world economic recovery, it is still challenging to create value in transactions, and many factors such as target selection, due diligence, valuation and integration also require the transformation of traditional M & A strategies Successful trading participants need to reshape their strategies, and Chinese enterprises should consider wider investment, not only to maintain their competitive advantage, but also to prepare for the next development.

Source: China trade news reporter Liu Guomin

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