China Moves in on Key German Companies

If corporate acquisitions were handled with a vacuum cleaner, we should start thinking of China as one big efficient house cleaner. A couple of weeks ago I alerted you to their appetite for American corporations, particularly technology companies.  Well the communist nation has also been suctioning up German tech companies with a fervor and efficiency worthy of a Carlyle Group M&A Asian office.

According to the German financial newspaper Handelsblatt, Chinese companies have made offers to German firms totaling over three billion dollars – more than in the last five years combined.

Yi Sun, a partner at Ernst & Young’s China Competence Center, says the Chinese appreciate the intense work ethic of German employees, as well as their propensity for avoiding strikes. These attributes, she observes, make German companies appealing targets for Chinese investors.

But China isn’t simply waving money in front of any company; they’re on the prowl for certain targets. Kai Lucks, chairman of the German Federal Association of Mergers & Acquisitions, says the Chinese are impressed by German firms’ technical standards, “Germany is the premium target for very specific segments of industry ….”

For instance, in 2012 Chinese companies purchased the firms Putzmeister and Schwing. These two purchases gave China control of virtually the entire global market of concrete pumps. The Chinese have traditionally had a problem with weak, home-grown brands. By purchasing companies that make products with well-respected brands, they’re hoping to shortcut the difficult and expensive process of brand-building, and grab almost instantaneous worldwide control of these markets.

China also has a strong interest in semiconductor technology. Last month, Fujian Grand Chip Investment Fund LP agreed to buy Aixtron (AIXGn.DE) for the equivalent of over $650 million.

In an attempt to take control of leading-edge German industrial technology, the Chinese home appliance maker Midea Group also offered to buy the German factory robot manufacturer Kuka for more than $506 billion.

China’s also focused on Germany’s financial sector. Last July, Fosun International agreed to buy the German private bank, Hauck & Aufhaeuser for more than $235 million. If successful, the transaction would be the first Chinese takeover of a European bank.

Some German officials look upon the revved-up Chinese quest for German companies as an invasion of sorts. With regard to factory robot manufacturer Kuka, Germany’s economic minister Sigmar Gabriel made a point of saying he would have preferred a European offer. In addition, when the Chinese come calling issues of patent theft and technology sabotage inevitably surface as well.

It’s a brave new world out there, and we should expect to see much more of China. While the Asian giant suffers from deflation and inhibited economic growth, it still has plenty of euros and dollars to drop on European and American businesses.  For the foreseeable future Chinese companies may find it easier to grow by acquisition than by their own bootstraps.

Private investors will also have to adjust to the change. You might very well own stock right now in a firm that will be taken over tomorrow by a Chinese company. While that’s not necessarily a bad thing, you should realize when the Chinese buy a company in which you hold shares they’re exporting a piece of their deflation directly to your portfolio…or your IRA/401(k)/TSP. In so doing, maybe they’ll zip-charge your assets; chances are they won’t.

If you want to mitigate other countries’ reach into your portfolio, gold and silver make impenetrable walls.  They’re hard assets no country can claim or take a piece of, and gold is historically inversely correlated to the stock market and to the U.S. dollar. Not to mention the fact that, by far, it’s the best-performing asset class this year.