Public companies are becoming rarer these days. In the US, for example, the overall number of listed firms has fallen by almost half since 2000. Global M&A could be one reason for this, because being a big firm is very important for many industries and getting internal growth is more difficult than associating with a big company. Meanwhile, stricter rules for public offerings also discourages IPOs these days and the rise of active investors has made venture capital big enough to support unicorns. How will corporate ownership evolve from here? What impact will this trend leave on the economy and society?
HNA Group is the most acquisitive Chinese conglomerate in China. Through acquisitions, the group quadrupled its size and made its debut on the Fortune 500 list as the world’s 464th biggest firm in terms of revenue. And it aims higher: becoming one of the top 10 by 2025 with holdings of $5–6 trillion in assets—more than double the assets held today by JPMorgan, the biggest bank in the United States. What is its business model like? How did the Group, which started as a small regional airline company in China’s southernmost island, with only two jets, make it? What are the risks behind the buying spree?
Chinese companies have been on a buying spree around the globe over the past two years. 2016 witnessed a record level of Chinese outbound mergers and acquisitions (M&A) activity, with 932 deals worth over $220 billion taking place, an increase of 246% compared to 2015, according to PwC China. However, the surge in outbound investments has brought concerns from both Chinese authorities and recipient countries; the latter are becoming more cautious regarding the presence of Chinese capital in large-scale deals in key industries. Affected by such concerns and tighter government scrutiny, the number of M&A deals might not be as numerous in 2017 as in 2016, but the trend will not stop.
Thirty years ago, there was such nationalist angst in the United States over Japanese buyouts of American companies that Hollywood even made a movie about it. In Ron Howard’s 1986 comedy Gung Ho, the fictional Assan Motors Corporation swoops in to buy an idled auto plant in a desperate Pennsylvania company town. The film was a comedy and of course ended with cooperation prevailing and the plant being saved. There is an obvious parallel with the situation today with the US agonizing over Chinese investments in a remarkably similar way to how it worried about Japanese takeovers in the 1980s.
Wang Jianlin, Wanda’s CEO, the richest man in Asia once said, “Our goal is to make Wanda a brand like Walmart or IBM or Google, a brand known by everyone in the world, a brand from China.” Dalian Wanda, with assets of over $96 billion, has grown from a property company to a large conglomerate, and has its fingers in many pies: from real estate and retail to sports and entertainment. It is also leading a world-wide buying spree, acquiring top assets such as AMC Theatres, Legendary Pictures, World Triathlon Corporation, and Infront Sports & Media. While trying hard to diversify its business, real estate still takes the largest portion in its revenue structure. But how stable is Wanda empire’s future?
The battle for car hailing market share has ended with Uber merging its Chinese business with local rival Didi Chuxing. The merger deal gave Didi a market share of nearly 90%. There are many worries and questions following the deal: will government consider it to be an absolute monopoly? Will passengers pay more and drivers being paid less? How will Didi manage to operate Uber China afterwards? To answer those questions we need to understand the history of Didi Chuxing—how it operated in ‘grey area’ and managed to beat so many other local competitors before it merged with Uber China—find the answer in our article.
Fosun Group, the largest private conglomerate in China, has been on what looks like a no holds-barred acquisition spree for a few years now. It controls the largest number of listed companies in China. It has invested in sectors as diverse as fashion, films and tourism outside China, whereas within China, the company relies heavily on its industrial operations. It is known for having a good relationship with the government, yet last year, Fosun’s founder suddenly disappeared to supposedly assist a graft investigation. How has Fosun scaled up? How do the acquisitions tie in with its business model? And will it realize its ambitions of becoming China’s Berkshire Hathaway?
The Chinese economy grew by 6.9% in 2015, the slowest pace in 25 years. The slowdown is likely to last as China works to change the fundamentals of its economy and transition from relying on investment to growth driven by services and consumption. In November 2015, Chinese President Xi Jinping said: “We will work hard to shift our growth from just expanding scale to improving its structure.” Overseas deal making is one way China is transforming its economy. Once used primarily to acquire energy and resources from developing countries, China’s outbound mergers and acquisitions increasingly involve the acquisition of premium assets in the US and Europe.
Why do so many overseas acquisitions by Chinese companies not live up to expectations? Very often the blame is pinned on ‘cultural challenges’ a subjective and suitably vague term. But if you dig deeper, you’ll find that in most cases the problem begins with the acquiring firm’s motives. In the past few decades the majority of Chinese overseas acquisitions have targeted resources. Their aim is to improve performance or lower costs by acquiring other companies’ resources such as technology, raw material, talent, etc. Acquisitions with this purpose come with several challenges afterwards. Is there a better way to evaluate possible acquisition targets? If yes, what is it?
In 2014 rival taxi apps Didi Dache and Kuaidi Dache engaged in a fierce price war that left onlookers stunned. According to multiple sources, Didi and Kuaidi altogether splashed over RMB 2 billion (approx. $376 million) on subsidizing customer ride fares. Yet in early 2015, the two bitter rivals announced their decision to merge. It made little sense. They couldn’t possibly have buried the hatchet that soon. Cases like Didi-Kuaidi are becoming common in China’s internet industry, spanning areas like online travel, group buying and classified advertisement websites. Why is China’s online sector witnessing a series of frenzied mergers, acquisitions and partnerships between sworn rivals?