Chinese component dealers accelerate mergers and acquisitions to narrow the technology gap

Abstract Reuters recently reported that China's auto parts makers are entering into the fast lane of overseas mergers and acquisitions M & A, and watching the sadness of the global market gradually closed the technology gap with world leaders to meet domestic market And eventually sold to overseas markets...

According to a Reuters report, Chinese auto parts manufacturers are entering the fast lane of overseas mergers and acquisitions of M&A, watching the mourning global market gradually closing the technological gap with world leaders to meet the domestic market and The demand for the thriving overseas market is finally sold.

Several major deals have been signed and more transactions are waiting in the coming months as the global industry cuts costs, Chinese giants are burying their seeds for only next year's harvest is able to work with German cars Parts manufacturing giant Robert Bosch and Denso Denso compete in a strong matchup.

But it is a mistake that, in many of China's major M&A transactions, it is typical that it may cause this headache and cause foreign component manufacturers to fall into the trap from the beginning. Dilemma.

The Chinese automotive industry has grown at an alarming rate over the past decade and surpassed the United States last year to become the world's largest automotive market.

However, the automotive segment of the Chinese market is still fragmented. There are fragmented 20,000 manufacturers lacking the funds needed to invest in meeting higher quality and emission standards and value chain enhancements.

Many Chinese companies are looking at technology from engine to brake and transmission systems, and are hiring investment banks, management consultants and law firms to study possible transactions.

Michael Jiang, KPMG's partner of KPMG and co-head of corporate finance at AutomotiveChina, said, “We have already suggested a certain number of Chinese companies, and they are actively looking at overseas M&A operations in the US and European markets. ”

Jiang predicts that the upcoming acquisition frenzy may witness a breakthrough in the $1 billion mark.

With more than two of the largest deals to date, the Beijing-TempoGroup and Beijing-Beijing joint ventures reported a $450 million acquisition of Nexteersteeringcomponents, a steering system company owned by General Motors' General Motors, last month.

Seeking scale
Other notable deals include Zhejiang Geely Holding Group Co., Ltd. GeelyAutomobile, which spent $40 million last year to buy Ford Motor Co., Ltd. Ford Motor Co., Ltd., Chrysler Group Chrysler and Chrysler Motors' Ssangyong Motor, a gearbox manufacturer in Australia, Drivetrain Systems International.

In addition, China's largest independent automaker, the Wanxiang Group, which owns the Shenzhen Stock Exchange's Wanxiang Qianchao Co., Ltd., is also active and active. The company has acquired more than North America, Europe and Australia in the past few years. 20 companies.

Other major independent component manufacturers that may be merged include Weichai Power Co., Ltd., which acquired French engine manufacturer Moteurs Baudouin last year, NASDAQ-listed SORL AutoParts Auto Parts Co., Ltd. and Zhejiang Wanfeng Auto Tire company.

Global market participants in distress may sell some or all of their operations, including struggling US companies like Delphi, Lear and Visteon.

Jiang mentioned that Visteon is a company that is rumored to be negotiating to sell company assets to Chinese buyers, although a Visteon spokesperson declined to comment on such market speculation.

Fragmented
Most Chinese component companies currently lack the scale based on the global stage.

Seven of China's 10 largest component manufacturers are from foreign companies, and about 70% of the country's $160 billion auto supplier market is occupied by overseas companies or joint ventures.

Three of the top 10 companies are from China, and these three are Chinese-leading automakers---Shanghai Auto Group Co., Ltd. SAICMotorCorp, China FAW Group FAWGroup and Dongfeng Motor Group Co., Ltd. DongfengMotor KPMG, the KPMG national accounting firm, said this. Most of those specialized companies are only engaged in the business of lower-end parts.

IvoNaumann, general manager of global consulting firm AlixPartners, said, “The market has become so important, so large and the automotive supply industry has a little behind in terms of the size and scope of the necessary construction.”

Bosch Bosch, one of the world's largest auto parts manufacturers, reported close to $50 billion in revenue in 2009, while a small number of independent market participants in China had a poor sales of just over $1 billion.

Chinese companies may need to make huge investments, either organically or through mergers and acquisitions, because they are pursuing higher marginal businesses while improving quality and emission standards.

When they do this, they will face many challenges. Significantly, most of the costs have risen significantly in the domestic market. Colleagues may increase their costs with the acquisition of expensive foreign operations.

The recent strikes in China's auto parts factories, that is, the riots caused by workers in order to obtain better compensation and working conditions, have begun to raise the corresponding cost nationwide.

The cost of rising raw materials accounts for 50% to 60% of the total cost, while the corresponding labor cost is 4% to 12%. Analysts point out that the cost of raw materials puts a lot of pressure on marginal revenue.

In addition, the lack of experience in managing multinational companies may also create a challenge, as witnessed by a series of failures in the major overseas mergers and acquisitions of Chinese companies, such as SAIC, the SAIC Group that bought Korean automaker Ssangyong Ssangyong. Just watching it bankrupt.

IvoNaumann, general manager of global consulting firm AlixPartners, said, “You manage this transaction is one thing, and successfully managing the business is another.”

If they can look outward, Chinese companies may need to accelerate their pace of action because the room for bargaining with the recovery of the global economy will gradually disappear.

Naumann also pointed out that "the windows that are open to such transactions will not be open forever because there has been some recovery in the US auto industry."

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