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In the afternoon of 22 April, the Cross-Border M&A and Hi-Tech Investment Summit (3rd) and the Award Ceremony of Golden Whistle Price (2nd) hosted by Morning Whistle Group and China Association of Private Equity, supported by Cadillac were held in Shanghai. The leading authority in the academy, heads of government and business leaders from the field of cross-border investment and M&A participated in a series of speech and round-table discussion about the topic of Overseas M&A. Yufang Guo, the chairman of the Board of Jomec Investment delivered a speech titled “The Current Situation of Overseas Mergers and Acquisitions of Chinese Enterprises”. The following is the transcripts of the speech. Thank you, the host. Thank you, President Wang. I am very delighted to share my thought with you. The topics of high-end manufacturing industry with Industrialization 4.0 and Chinese overseas M&A have been discussed during the summit forum hosted by the Morning Whistle Group. The Investment and M&A have become a popular statement these years. However, the problems are always more than successes in practice. Let us talk about the current situation about the overseas M&A of the Chinese enterprises. Nowadays, there is a phenomenon of impetuosity in the field of overseas M&A. The conversion rate of international M&A is low, but the success rate after the M&A is lower. The Industrialization 4.0, the Manufacturing Renaissance, the “Going Global” strategy of Chinese manufacturing industry and “look to the most advanced in the world” are aimed at avoids detours by using for reference the experience and lessons abroad. If we operate the overseas M&A with a blundering mood, the detours are inevitable. Plenty of Chinese companies choose to do overseas M&A businesses due to the financial consideration. The listed companies tend to choose the large overseas company with high profits as the M&A target. Therefore, the PE ratio in China will grow up faster. However, during the M&A, the Target company and Chinese company usually lack a good connection. Once I was accompanied by a principle officer of a Chinese company doing M&A business in France. A French senior official greeted us. This French Official asked us: “do you have any experience in the field of international M&A? How to recombine this company after the M&A?” The target company is a large French company. The M&A means a recombine of the company management. The principle officer of the Chinese said, “We will retain the whole of the target company including the management, the staff and the production. We hope that the capacity of the company can also be expanded since the company is facing the problem of capacity adjustments in Europe.” In previous years, the European market is not too optimistic as a whole. Chinese entrepreneurs tend to tell the target companies that the Chinese market is huge enough to accept any product. Our M&A is aimed at helping European enterprises to develop Chinese market. China has a large market. We can solve all the problems you are struggling with. After that, you are still you and I am still I. In the end, it gives us more opportunity to cooperate. The above arguments are quite popular among the Chinese entrepreneur when they are dealing with the overseas M&A business. This is the objective reality which is quite attractive to the target company. Until now, almost all the transnational corporations are facing all kinds of difficulties in China. Why? The current Chinese economic development and the special cultural of Chinese enterprises are different to the cultural of the transnational corporation. These kinds of differences lead to the problems in the process of internationalization of Chinese enterprises. Furthermore, I would like to talk about the weakness of the Chinese manufacturing industry. All the middle and low-level industry products manufactured in China are over capacity, not only in the Chinese market, but also the world market. This phenomenon mainly exists in middle and low-level industry rather than high-level industry. China is the largest consuming country of the high-end manufacturing products in the world. Some kinds of brands in Europe, like the automobile industry, luxury, and food which are facing sales difficulties in Europe, are popular in China. When Chinese customers come to Europe, they usually buy five or six luxury handbags per person. If a European want to buy a such a handbag, the seller will give a cup of coffee to the customer first. Then they will talk about the history and culture of the handbag. When it comes to Chinese, a shop might be sold out immediately. During the last thirty years, there are lots of excellent Chinese enterprises appeared. However, the Enterprise Culture still needs to be deepening compare to the first world level for the company. Now we still have a long way to go. The weakness of the Chinese manufacturing industry is that there are too many enterprises concentrated in middle and low-level manufacturing industry. We are in need of famous brands and key techniques. There are some foreigner calls the innovation of Chinese enterprises as “copy innovation”. On one hand, “copy” made lots of Chinese enterprises stand up at the international level. On the other hand, “copy” can lower the price. Although European and American enterprises cannot manufacture with a high speed and a low price, their level of research and development is higher than Chinese enterprises. If always follow with others, then the Chinese enterprises will never become the world leading enterprises. What is the meaning of high-end manufacturing? I have been working and living in Europe for a long time. I can tell you that most of the Chinese entrepreneurs in Europe are patriots. We always talk about how to catch up with and surpass the European and American enterprises. The thing is, we need to be in the right frame of mind. The Industrialization 4.0 is not a new phenomenon. From the second industrial revolution in the 19th century to now, the European and American industry have always been ahead of China. This is lead by the spirit of the craftsmanship. The craftsmanship does not only exist in Germany, but also in other countries in Europe. The core of the craftsmanship is, be meticulous at their jobs. The manufacturer will not stop improving unless they have made the best. This spirit has nothing to do with the level of technological development. A few years ago, I rent an apartment in Beijing. The apartment was located in the central area of the city. It looks very exquisite from the appearance. However, no matter how hard I try, I could not turn the water tab on. This problem is very easy to be solved. It has nothing to do with high technology. But the manufacturer was careless. They might think that it is ok with a beautiful outlook. This is not a craftsmanship. Most of the staffs in the European enterprises are likely to change when they saw something need to be changed, even it will only make a tiny improvement. Huawei has developed this craftsmanship these years so that it can make a perfect job in the mobile phone industry. I believe, more and more Chinese enterprises are working hard to catch up. Of course, this will need time. The heart of the high-end manufacturing in Europe is not the manufacturing itself, but the purpose of the manufacturing. The purpose of the manufacturing is to satisfy the need of customers. The target of European enterprises is not only to produce the products, but also design a solution with modern high technology. Thus, the size of the line scale is not so important anymore. A month ago, I received a delegation of Chinese manufacturing industry. They went to the Netherlands and Germany to visit the manufacturing enterprises. After the visiting, some of the Chinese entrepreneurs were a little bit disappointed. They said: those machines are not as advanced as ours. Our products will definitely better than theirs. Therefore, they can send the orders to China. Our Chinese enterprises can arrange the production. After a discussion, the Chinese entrepreneurs found out that things are not as easy as they imagined. Although the Chinese enterprises have the manufacturing capacity, they are weak in R&D and brand effect. They also lack the quality control system and after-sales service. These are what Chinese enterprises need to make improvements. This kind of development can also be beneficial to creating a better market environment. The overseas M&A can be helpful to remove the weakness of Chinese manufacturing industry. This kind of weakness does not only exist in China, but also in the whole world. During the process of overseas M&A, plenty of Chinese enterprises are willing to chase short-term financial returns rather than the sustainable development of the enterprises. German enterprises are good examples. German enterprises seldom use price leverage. They seldom prioritize the short-term financial returns but to focus on the sustainable development of the enterprises. From the end of the 19th century, the whole world admires the export of the German manufacturing industry. Entrepreneurs should be patient, neither extreme nor impetuous. “Some of the opportunity to make money should be given up.” A client of mine has been cooperated with the Chinese company for three years. Once, they sent a technical team to the Chinese factory to check the product quality. During the inspection, they found that the products are of poor quality. The German entrepreneur considered that the quality of the products should be improved before entering into the market. The Chinese entrepreneur held an opposite opinion. He said that although our products here are not as good as that produced in Germany, our products are the best in China. Besides, my products have the largest Chinese market share. If the quality were improved, the cost would be improved at the same time. The profit will not be increased. Therefore, I should not improve the products quality. Then the German entrepreneur said: under this circumstance, you cannot use my brand any more. At last, Chinese entrepreneur took the German share and the German entrepreneur took three times good. The German entrepreneur took the money and left China in frustration. Here is an unavoidable question: the quality of the products or the financial profit, which one should be chosen. Chinese entrepreneurs would more likely to choose the latter. In order to pursue the financial profit, the private equity (PE) has been introduced into exists in China. I heard the statement “PE is becoming more like venture investment (VC), the VC is in the process of bubblization.” Chinese enterprises must make the right choice between the products and the financial profit. Now we are facing a more important issue, the narrow-minded psychology. Some Chinese entrepreneurs consider that the transnational corporations after the M&A should be Chinese enterprises. In their opinion, these enterprises should serve the interest of Chinese entrepreneurs. They also think that Chinese should be the leaders of the transnational corporations. The fact might not be like this. In the context of globalization, the transnational corporations are not Chinese enterprises, German enterprises or American enterprises. Almost all the transnational corporations are developing their agencies in different countries. Almost all the transnational corporations have shareholders, executives and staffs from every country and culture. I call transnational corporations as “community of interests”. Chinese entrepreneurs should consider the whole world as their interest holder. Transnational corporations rely on global resources. Meanwhile, transnational corporations are not only serving the personal interest of entrepreneurs but also creating social value. When Chinese enterprises become transnational corporations, their sense of social responsibility will be globalized. There is a distribution in the global market. For the next 20 years, it is impossible for the Chinese enterprises to catch up with and surpass the European and American. But it is fine. The core of the overseas M&A is the globalization of capital and creative ability. We can imagine that China as the largest manufacturing industry base will not be shaken in 10 to 20 years. We can learn from the European and American to accelerate innovation. More and more Chinese enterprises will participate in the world manufacturing industry through overseas M&A. Now the essence of the process of the globalization of Chinese high-end manufacturing is joining in the world market through M&A. There are cultural differences between China and western world. We need more and more Chinese with the western background as the bridges of communication. Hope they can introduce more and more Chinese entrepreneurs turn out to the world and invite more and more manufacturer into China. Thank you!

No ‘Lehman-like’ crash in global activity UK M&A levels will take four years to recover parity with ‘No Brexit’ predictions as vote will cost the UK economy at least US$240 billion in lost M&A Significant short term impact on European activity if further political uncertainty The post UK referendum global M&A market could face a deficit of up to US$1.6 trillion in lost merger and acquisition activity unless an orderly and swift Brexit process is followed. Baker McKenzie’s Global Transactions Forecast, based on financial modelling by Oxford Economics (OE), shows the potential scale of the damage both an orderly and disorderly exit by the UK from the EU could do to markets and deal making activity. Unsurprisingly the impact is disproportionately felt in the UK and rest of Europe. No Lehman Moment What is clear is that the impact of Brexit is not as global as the Financial Crisis of 2009. Under our Central Scenario global M&A transaction activity is only modestly down for the next two years before fully recovering. And while domestic UK deals are down under either scenario there will still be plenty of London based activity. Tim Gee, London M&A partner, says, Regardless of the volume and value of UK specific deals the primacy of English law for many cross-border deals, even when they don’t involve UK assets or business, will continue. London will also retain a remarkable concentration of financial, legal and economic talent. In the last few days we have seen evidence that the M&A market in the UK won’t come to a crashing halt even if it won’t be at its previous pace. There are still plenty of buyers and sellers for the right deal at the right price. There are already some clear upsides – global organizations looking to acquire UK companies will find that a weaker pound makes UK valuations more attractive, although the uncertainty surrounding trade negotiations could deter the more risk averse,” Tim continues. Central Scenario – Orderly Exit Capital markets in the UK and the rest of Europe have already been hit hard by the uncertainties surrounding the UK’s relationship with the EU as the Cross Border IPO and Cross Border M&A indices Baker McKenzie released last week highlighted, with EMEA IPO and M&A activity down by 50% and 17% respectively in the first half of 2016. The central scenario of the Transactions Forecast suggests more of the same, even with a relatively quick and painless Brexit leaving access to the single market in place. With GDP forecasts for the UK halved to 1.1% growth in 2017, M&A transactions will also fall by 33% next year with, a cumulative drop of US$240 billion (or 24% drop) over the next five years and a recovery only by 2020 to parity with the no Brexit scenario. The picture for IPOs is equally depressed as these flows tend to be even more sensitive to confidence effects than M&A transactions, so the UK market is likely to remain relatively quiet over at least the next couple of years. Michael DeFranco, Global Chair of M&A, says, An active M&A market is all about confidence and credibility. To restore that confidence the UK Government will need to get to grips with the enormous challenge of negotiating a new trading relationship with the EU as quickly as practically possible. Otherwise we move into more dangerous territory. The central scenario assumes that spillovers to markets outside the UK are modest with M&A levels in Europe falling by 8% in both 2017 and 2018 but recovering by 2019. Adverse Scenario – Disorderly Exit However without a clear Brexit roadmap a more damaging cycle of political and market uncertainty could be unleashed with subsequent repercussions for transaction activity globally. In this ‘adverse Brexit scenario’, the UK vote to leave adds to the existing strength of populist mood across Europe leading to further questions about the unity and stability of both. Substantive progress on Brexit is hampered by lack of available resource and the complexity of renegotiations as well as lack of access to the single market. Under the more adverse scenario with heightened uncertainty about the future political and economic landscape in Europe, business confidence is hit hard and near-term investment plans scaled back. Over the five years, UK M&A would be down 34% or US$340 billion and there is a significant slowdown in Eurozone GDP growth, which eases to 1.0% in 2017 and 1.2% in 2018, M&A activity in Europe (ex. UK) is predicted to be almost 40% lower in 2017 than would have been the case if the UK had voted to remain in the EU. Under both the Central Scenario and the Brexit Adverse Scenario global M&A levels would be impacted but less dramatically and the recovery to the ‘no Brexit’ forecast would be quicker. That said, the forecast suggests that with an adverse Brexit scenario Global M&A levels in 2017 and 2018 would be 19% or over US$1.17 trillion lower. This Article is reproduced from Baker Mckenzie.

Chairman of Swiss farm chemicals giant Syngenta, Michel Demare (R) shakes hand with Chairman of ChemChina Ren Jianxin during a press conference to present Syngenta’s annual results at the company’s headquarters in Basel on February 3, 2016. State-owned China National Chemical Corp on February 3, 2016 offered $43 billion in an agreed takeover for Swiss pesticide and seed giant Syngenta, in what would be by far the biggest-ever overseas acquisition by a Chinese firm. (MICHAEL BUHOLZER/AFP/Getty Images) “The Chinese aren’t coming, they’re already here.” I’ve been told this repeatedly as I’ve traveled across Eurasia looking into Chinese investments along the New Silk Road. But it’s not just trans-continental highways and rail lines, industrial and special economic zones, and new cities that China is interested in pumping money into abroad, but foreign companies as well. China’s outbound merger and acquisition (M&A) investment in the West has been growing at a record pace, as more and more major American and European companies are strategically being bought up by Chinese enterprises. According to a recent report by the Mergermarket Group, China had already surpassed its yearly record for outbound M&A investment by the end of August. With 173 deals worth $128.7 billion in the books, China is so far the top acquirer of foreign companies in 2016 — a position which, if held until the end of year, could unseat the USA for the first time since 2006. “China has seen continuous annual growth in both outbound deal size and deal volume in the recent ten years,” said Yiqing Wang, Mergermarket’s China editor. “However, 2015 and 2016 have witnessed [an] even more aggressive growth spree.” The types of foreign firms that Chinese companies are most interested in acquiring have moved beyond the usual resource and energy sectors and into the technology, industrial, chemical, and consumer spaces, which closely mirrors the broader economic transition that is currently underway in China — which is focused on moving away from export-driven manufacturing towards high-end, high-tech R&D and domestic consumption. In addition to being numerous, many of China’s takeovers of Western companies this year have also been huge. ChemChina acquired the Swiss pesticide and seed producer Syngenta AG for $43 billion — the largest overseas acquisition by a Chinese company to date. Tencent took over Supercell, the Finnish mobile game developer, for $8.6 billion. Zhongwang International bought out U.S. aluminum producer Aleris for $2.3 billion. HNA Group purchased Ingram Micro Inc for $6.3 billion. Haier Group paid $5.4 billion for General Electric’s home appliance division. While even the Chicago Stock Exchange hasn’t remained off the radar of Chinese investors. Europe has been the prime focus of Chinese M&A investment this year, with $76.5 billion going towards the acquisition of European firms. Germany is the European country drawing the most interest from Chinese pursuers, as 24 German companies — roughly one per week — have been acquired by Chinese enterprises as of June of this year. For scale, in all of last year there were only 25 such transactions. But if we think that Chinese companies are bailing on China by buying up foreign companies – we’d be mistaken. One of the major drivers behind this phenomenon is actually the exact opposite. “We found that [the] majority of the deep pocket Chinese acquirers aim to obtain high-end, world-class technology [to take] back home to add on [to] their current product development skills,” said Mergermarket’s Wang. This movement is in line with China’s “Made in China 2025” initiative, which seeks to upgrade and enhance the country’s domestic manufacturing capabilities, bolster innovation, and establish ownership of key technologies. In this light, even though the cost of China’s Western shopping spree is in the hundreds of billions of dollars, the long-term economic benefit and future scalability of what is actually being acquired is thought to be a bargain. China’s hunger for key foreign companies also complies with the “Going Out policy,” which is an initiative by the country’s central government to encourage domestic companies to go abroad to make investments, utilize foreign reserves, establish consumer bases, as well as enhance China’s international political and economic influence — much of which can be accomplished through M&A. With the year-on-year growth rate of China’s domestic economy leveling off, the country’s wage advantage rapidly vanishing, the large amount of political and financial support for outbound investment, a booming consumer market at home, and the new infrastructure network that is rapidly spanning across Eurasia, now is a riper time than ever for Chinese companies to venture into foreign terrain. Which is to say, expect this movement to continue growing. “After all,” Wang concluded, “it’s just the beginning of their globalization spree.” This Article is reproduced from Forbes.

LONDON, Dec 16 (IFR) – The European market could take a big chunk out of a bursting M&A pipeline in 2017 after it proved its mettle against the US dollar market in 2016, further cementing the region’s role for corporate financing. Several M&A-related bonds are heading Europe’s way in 2017, according to bankers, after borrowers such as AB InBev and Verizon demonstrated the depth of investor demand for their jumbo multi-tranche bonds. “European M&A related flow is expected to pick up next year and therefore financing needs could be exponentially higher,” said Lorenzo Frontini, head of FSG in Europe, Middle East and Africa at Deutsche Bank. “With a constructive new issue environment, issuers will try and maximise the opportunity with focus on their respective domestic markets, targeting investors based in their home jurisdiction.” Cheaper funding costs and increased demand have enticed companies into the European market since the ECB launched its Corporate Sector Purchase Programme on June 8. The central bank’s decision to extend the programme until December 2017 will further bolster momentum, on the expectation that credit spreads will be well supported. “We will also see opportunities for M&A takeout across different investor bases structured to minimise price breaks,” Frontini said. A LOOK AHEAD Those anticipated to issue M&A-related bonds include Bayer, which said it will sell a mix of senior and hybrid debt to help finance its US$66bn takeover of US seed company Monsanto. Bayer expects to close the transaction by the end of 2017. Europe offers a well-tested hybrid market, widely used by issuers to fund aggressive corporate strategies. Hybrids, which receive 50% equity credit at the major rating agencies, are seen as a way for companies to raise cheap equity while defending credit scores. “Although M&A activity has slowed recently, we see opportunities in select credits where management is committed to maintaining an investment-grade rating, which we believe will provide attractive spreads going forward,” said Nathaniel Barker, co-head investment grade corporate credit at Barings. Others expected include AT&T, which has agreed to buy Time Warner for US$85.4bn. The company said it would finance the purchase with new debt and cash on its balance sheet, and has an 18-month commitment for an unsecured bridge facility for US$40bn. Investors are not expecting any action in the euro market in the first quarter of the year due to the bridge being in place, but are anticipating around US$30bn to be issued across US dollar and euro debt. British American Tobacco is also expected to add to the upcoming deluge of M&A-linked supply, after it made a US$47bn bid for the rest of US tobacco company Reynolds American it does not already own. The initial bid was rejected by Reynolds and BAT is reportedly in negotiations to raise its offer, according to Reuters. Investors expect most of the financing to be placed in the US dollar market, but say the low cost of euros could mean they issue a reasonable chunk in euros in early 2017. DEPTH OF DEMAND Europe has traditionally played second best to the US market, which is known for easily absorbing multi-tranche multi-billion trades. But M&A issuance in 2016 proved that borrowers could achieve the same size and demand they have been accustomed to in the US market, paving the way for more momentum-based supply in Europe. AB InBev printed the biggest ever corporate bond in the European market in March, with the 13.25bn debt splurge attracting 31bn of orders. The following month, Air Liquide raised 3bn to fund its US$13.4bn takeover of US peer Airgas, while later in the year Danone and Verizon sold respective 6.2bn and 3.75bn-equivalent deals. “The M&A wave is picking up in Europe, we’ve already seen a lot in the pharma sector so I would be surprised to see more there, but we expect to see a pickup in euro M&A overall,” said Matthew Rees, senior credit analyst at LGIM. (Reporting By Laura Benitez, additional reporting by Helene Durand, editing by Julian Baker) This Article is reproduced from Reuters.

Ctrip’s $1.74 billion acquisition of Scotland-based Skyscanner, while representing a major exit for Europe’s technology ecosystem, is also part of a wave of Chinese M&A transactions – led by its Internet majors seeking to expand their international footprint – at a time when Chinese deals are serving influence the global M&A landscape. According to CFO Innovation, Chinese outbound M&A surged 180 per cent by value in 2016 to $187.5 billion as Chinese enterprises sought diversification and exposure to growth industries in Western markets. Chinese cross-border M&A was up 223 per cent by value in Europe and 558 per cent in North America. Data compiled by CB Insights  indicate – excluding privatisations and de-listings from bourses – that the ten largest Chinese Internet firms trading on US bourses, such as Alibaba (and affiliate Ant Financial), Tencent, Baidu, Netease, Ctrip, JD.com, Netease, Weibo, Vipshop, Sina Corporation and 58.com have made nearly 60 acquisitions since 2011. Overall, the pattern of acquisitive behaviours has seen a shift towards acquisitions of companies outside of China, with 2013 being an exception for Chinese Internet corporations. Chinese Internet firms are venturing abroad and expanding their scope beyond the Chinese market, however these efforts have met obstacles. One factor is that expansion to emerging markets – with the hope of replicating their domestics success by leveraging on large user bases with free mobile games and apps – hasn’t generated the revenue figures that Chinese firms have targeted. Besides lacking the same development trajectory as China, fast user growth in markets such as Brazil doesn’t necessarily translate to substantial revenue. Emerging markets, while promising in terms of their growth potential, lack the developed infrastructure and spending power that development markets offer. This has led Chinese Internet firms to shift other focus to more developed markets in North America and Europe.

One of Jomec’s classic cases is providing M&A and post-investment management services for an acquisition on Dutch medium-sized customized precision machinery processing enterprise with a 35-year history. The market share of the target company was shrinking due to the macroeconomic and industry recession. On the other hand, the company’s labor cost planning is unreasonable, which lead to high operating costs. Investment Management The allocate resources and optimize the formation of the value-added market has always been our investment principles. After the analyzation on company’s financial statements, operating conditions, asset structure, and management team, we chose the best time for bargain-hunting. After negotiations with the shareholders of the target company, we eventually acquired 100% shares of the company with a low bid, and gradually optimize the business management. First of all, we deal with the issue of redundancy at a low cost. The salaries saved are used to pay off bank loans owed by the company. In addition, we obtained purchase orders from Dutch and German enterprises through the network of our subordinate. The Company acquired another Dutch precision manufacturing group through bank leverage and created one of the precision manufacturing giants in the Netherlands. Currently, the company’s turnover is about 100 million euros. Future Outlook We acquired a Dutch advanced water treatment company in 2015, and established a Dutch environmental technology group through reorganization. We completed a number of business orders with each approximately ten million euro. We have also been invited to participate in a delegation to investigate and discuss the PPP projects regarding chemical plant pollution abatement in 2017 by the government of Hebei Province. We sincerely hope like-minded investors to join us and jointly develop the Chinese environmental protection market. If you are interested in this, please contact us.