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Chinese firms follow green trend in overseas M&As
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THERE is a long history of Chinese companies merging with or acquiring foreign firms in the mineral, property and banking sectors, but now these M&As are taking on a greener hue.
Overseas specialists in waste management, sewage treatment and renewable energy are drawing keener interest from their Chinese counterparts, both state-owned and private.
The world’s second-largest and most populous economy, China is seeking to acquire advanced technology to address its environmental woes, while Chinese green firms are looking to M&As to elevate themselves in fierce market competition.
They spent more than US$800 million in 14 overseas M&A deals in 2015, according to data compiled by the Morning Whistle Group, a Shanghai-based information provider on cross-border M&As.
Mature technology and strong market bases are what lured Chinese buyers, and more such deals are likely this year, the group said in a report.
Among those companies purchased were firms in Europe, the United States, Singapore and New Zealand involved in sewage and sludge treatment, soil restoration and waste management.
In 2014, the state-owned Beijing Capital Group made the largest-ever overseas acquisition of an environmental firm by a Chinese company, paying about US$800 million to buy New Zealand’s biggest waste manager.
That record may be smashed soon. China Tianying Inc, a privately owned waste-burning power firm listed in Shenzhen, is pursuing one of Europe’s leading energy-from-waste companies, reportedly valued at US$1.6-2.1 billion.
The Chinese firm has entered the final bidding process for Germany’s EEW Energy from Waste, China Tianying Chairman Yan Shengjun said.
Chinese environmental firms have tended to buy market leaders to gain advantages in global expansion, and prefer businesses in developed countries for stable returns and a sound regulatory environment, the Morning Whistle Group said.
Most buyers now put their targets’ profitability and potential under a lot of scrutiny, showing their awareness of market risks, according to the report.
Rational and selective
While increasingly interested in overseas spending, Chinese companies are becoming more rational and selective in evaluating their targets.
After the global financial crisis, there emerged a lot of good overseas assets to buy, but there were also some low-quality ones, said Yan.
“One cannot buy for the sake of buying,” he said, noting that a good deal should match the buyer’s business strategy and management capability and multiply value for both sides.
Overseas M&As are part of Chinese green firms’ efforts to grab shares in a rapidly expanding market with low industrial concentration.
Fueled by soaring demand and government support in a country beset by pollution and energy strain, China’s environmental industry is expected to become a new growth driver for the slowing economy.
Revenues of listed environmental firms rose nearly 40 percent year on year in 2014, compared with 28.8 percent in 2013, according to data compiled by Huarong Securities.
Meanwhile, most such companies are small and there is big room for consolidation, leading to a rise in M&As both at home and outbound, said Zhao Yu, analyst with Huarong Securities.
As competition gets intense and support policies fade out in future, only those firms with strong technology and marketing will prosper in the long term, Zhao said in a research note.
In the opinion of China Tianying’s Yan, a deal with EEW would allow the two companies to complement each other’s strengths and shape the global waste management market.
While EEW has a competitive edge in handling calorific waste typical in developed countries, China Tianying is good at burning less calorific waste for energy, Yan explained.
China’s environmental industry still has huge room for growth compared with developed countries. The energy-saving and environmental industry is expected to post an annual output growth of over 20 percent in China during the 2016-2020 period, said Jon Li, secretary-general of International Energy Conservation Environmental Protection Association.
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