Domestic machinery giants export capital to accelerate overseas acquisitions

On the evening of July 6, XCMG completed the acquisition of a 52% controlling stake in Schwerin Co., Ltd. in Hearn, Germany. As a powerful combination of the world's two largest construction machinery giants, this acquisition will lead to a huge machinery manufacturing group with a current growth of about RMB 10 billion.

In April of this year, Sany Heavy Industry announced a high-profile announcement of the joint acquisition of 100% stake in Putzmeister, the first brand of global concrete machinery, with CITIC Fund. In 2008, another domestic construction machinery giant Zoomlion also successfully acquired CIFA, an Italian construction machinery manufacturer, which accounted for 8.9% of the concrete pumping machinery market at that time.

In an interview with a reporter from the Securities Daily, an expert in machinery manufacturing industry analyzed: “According to the normal economic laws, most companies are shunned by companies that are caught up in the debt crisis in Europe. At present, they include Xugong Group and Sany Heavy Industry. The Liugong and other machinery manufacturing giants did the opposite, accelerating their expansion in overseas markets in the past two years, and those giants that have drawn a lot of capital from the A-share market used abundant funds in the face of technological and sales bottlenecks. Support, collective 'bottom-bottom' European and American markets."

Mechanical manufacturing frequently occurs in large-scale mergers

It is reported that the main body of this acquisition work is Xuzhou Construction Machinery Group Co., Ltd. The target of cross-border acquisition is the international market of middle and high-end concrete complete sets of equipment. This acquisition is another major international M&A project undertaken by Xugong Group following the successful acquisition of German FT company and Dutch AMCA company.

On the same day, XCMG announced that it will invest more than 36 million euros in the establishment of an Xicai Group Europe Co., Ltd. covering 16,400 square meters in Krefeld, Germany. The company is positioned as a cutting-edge technology research and development leading company, and will focus on key technologies such as the development of hydraulic components such as hydraulic valves, pumps, motors and intelligent controls. It is planned to be completed and fully operational in July 2013. The company will also become Xugong Group's high-end hydraulic and transmission technology center, complete machine technology cooperation promotion platform and top talent cultivation center in Europe, and become the European technology headquarters of XCMG in the global R&D layout.

When asked why domestic machinery manufacturing giants prefer overseas mergers, a market analyst who did not want to be identified analyzed with the "Securities Daily" reporter: "In the past decade, China's heavy machinery enterprises have developed rapidly and have passed Sub-market oligopolistic business models have accumulated raw capital in China, and with the development of bottlenecks, technological factors and market factors have driven these companies to expand externally. Currently, European and American engineering machinery manufacturing companies from the management level, market segmentation, and market Positioning and other aspects have reached a fairly mature level, while domestic large-scale machinery manufacturers have rushed to land in Europe and the United States, merged and acquired relevant European and American companies, first to reduce global manufacturing costs, and secondly, obtaining advanced technology from overseas peers through mergers is also a common acquisition. Finally, finding a bigger market for product sales is also a traditional Chinese medicine factor for overseas expansion of the machinery manufacturing industry."

Listed companies need to be cautious about overseas expansion

In the past two years, major companies have slowed down the pace of mergers and acquisitions in the European market and elsewhere due to concerns that they will be dragged down by the European debt crisis and the global economic downturn. Domestic machinery manufacturers are unique. According to a group of Chinese companies' M&A data issued by an authoritative research center, in the 422 M&A cases completed in the Chinese market in the first half of 2012, the machinery manufacturing industry took the lead and 50 M&As were completed, accounting for 11.8%.

Only this year, there have been two large listed machinery manufacturing companies that completed large-scale overseas acquisitions. In mid-January, Sany Heavy Industry announced that it would spend 2.7 billion yuan to swallow the German company Putzmeister. While waiting for approval from the Development and Reform Commission, another listed company, Guangxi Liugong Machinery Co., Ltd. announced on January 31 that the company will spend 335 million yuan to acquire the construction machinery business unit of Polish construction machinery company HSW.

“But I believe that although the debt crisis in Europe has caused the shrinkage of assets and profits of European machinery manufacturing enterprises, it is easy to be acquired. But after all, this belongs to cross-border, multi-regional mergers and acquisitions. Listed companies should conduct adequate research on the EU’s related merger policies before taking action. In addition, listed companies should focus on and properly handle the frictions and disputes arising from the integration of corporate resources and culture, and make every effort to resolve any reasonable compliance and utilization of the funds raised from the capital market.” Securities of Beijing Forestry University Xiao Huijuan The Daily reporter said so.

When the reporter called the relevant staff of Xugong Machinery's Office of the Office of the Secretaries of the Office, the other party said that the listed company did not participate in the acquisition process and did not understand the strategic decisions of the controlling parent company.