China’s Deal Makers Have German Tech Firms in Their Sights
Chinese investors have sought to buy German companies at a rate of roughly one a week this year
FRANKFURT—Chinese companies are on course to set record investment levels in Germany this year, fueling concerns about the country losing hold of its most innovative and technologically advanced companies.
Since the start of the year, Chinese investors have sought to acquire German companies at a rate of roughly one a week, according to data provider Dealogic.
They have offered to buy 24 companies, less than six months into 2016, and at this pace will soon surpass the record 28 German acquisitions racked up in 2014.
The deals have already achieved a new high in terms of spending.
By mid-May, Chinese investors had offered the equivalent of $9.1 billion for German companies, well beyond the record $2.6 billion splashed out in 2014, according to Dealogic.
Behind the surge are China’s rising labor costs and shifting demographics, which have slowed domestic growth.
“Now that China’s wage advantage has gone, the government has realized it’s important to create world leaders in markets, to build the empire basically,” said Andreas Grille, a principal in consultancy Roland Berger’s investment-banking practice.
The splurge is drawing attention less for the sums involved than the targets, some of which are considered pivotal to Germany’s ambitions in manufacturing and engineering technology. Several are touted as crucial players in a national initiative to digitize manufacturing and link factories to consumers via the internet, called Industrie 4.0.
The transactions also come at the same time European industry more broadly is complaining about difficulties doing business with China. The European Union Chamber of Commerce in China, representing 1,600 companies, said Monday that the environment there is becoming more “hostile” toward foreign companies, and remains skewed in favor of domestic competitors.
“We completely open up our markets, but the Chinese don’t open theirs to us. That could prove fatal in the long run,” said Daniel Bauer, spokesman for SdK, a German investor-protection association.
The deal that has irked Germany most is a $5 billion bid by Midea Group Co. , a Chinese appliance maker, for robotics specialist Kuka AG .
It is the latest example of a Chinese company seeking to buy into Germany’s pioneering technological and research prowess.
“I think the Kuka takeover raises some questions,” said Roland Klose, a professor at FOM Institute of Strategic Finance in Essen, Germany.
“Automation and Industrie 4.0 are supposed to be of long-term, strategic importance for German industry, [and] the €4.4 billion for Kuka isn’t much money for access to key technologies.”
Shareholder associations and German unions have also expressed concern, and last week German Economics Minister Sigmar Gabriel proposed forming a European consortium to launch an alternative bid for Kuka. On Wednesday Mr. Gabriel suggested tougher rules for investors from restrictive economies, without mentioning China specifically.
“We must consider we have one of the most open economies in Europe and are competing with companies that don’t come from open market economies,” Mr. Gabriel said.
Other recent proposed or completed Chinese deals in Germany include China National Chemical Corp.’s $1 billion takeover of KraussMaffei Group, a cutting-edge equipment maker that processes plastics and rubber, and Beijing Enterprises Holdings Ltd.’s $1.59 billion takeover of EEW Energy from Waste, which operates high-tech waste-incineration plants that produce electricity, heat and steam for industrial use.
Some Germans say their country is naive to leave its markets open to Chinese companies. “When Kuka’s development partners know its ownership has changed, they may reconsider their cooperation on certain innovations, given some of the information flows could be directed back to the Chinese owner,” said Mr. Grille at Roland Berger.
Germany ranks second in investment value of Chinese acquisitions in Europe this year behind Switzerland, according to Dealogic. Switzerland’s 11 Chinese deals, valued at $48.81 billion, were dominated by a $43 billion bid by China National Chemical—known as ChemChina—for Swiss agrochemical company Syngenta AG in February.
So far this year, 24 of a total 119 pending or completed Chinese acquisitions in Europe have been in Germany, putting it ahead of 15 each in France and the U.K., according to Dealogic. Last year showed a similar pattern.
“China is looking to improve its advanced manufacturing capability, with more digitization and automation. German firms are world leaders at this,” said Margot Schüller, senior research fellow at the GIGA Institute of Asian Studies in Hamburg.
Germany and Europe will have to get used to China’s increased presence, said Yi Sun, a partner at Ernst & Young, where she leads a team advising Chinese companies on investing in Germany, Austria and Switzerland. “Chinese companies are getting more successful at takeovers, especially because these firms are getting experienced. There are plenty more deals in the pipeline,” Ms. Sun said.
The German takeovers are part of a buying campaign that has made China the world’s top foreign acquirer to date in 2016. If it finishes in first place, it would dislodge the U.S. from the top spot it has held since 2007.