MONDAY, MARCH 19, 2012 AT 6:11PM
The latest success—I suppose you could call it that, at least for those involved on the financial end—was the acquisition of Kiekert AG last week. The company was founded in 1857 in Heiligenhaus, near Düsseldorf, Germany, and over time became the largest manufacturer of automotive door-lock systems, with customers like GM, Ford, VW, BMW, and other automakers around the world. It has facilities in Germany, the Czech Republic, Great Britain, the US, Mexico, and, since 2008, China.
In 2000, it was taken over by Permira, a European PE firm that loaded up the company with debt. By 2006, the game was over. Kiekert was turned over to its creditors, Bluebay Asset Management, Silver Point Capital, and Morgan Stanley, in a debt-to-equity swap. And last week, the consortium was able to exit by selling Kiekert to Hebei Lingyun Industrial Group Corporation (Lingyun Group), a subsidiary of China North Industries Corporation. Norinco, as it’s called, is a government-owned conglomerate that manufactures motorcycles, cars, trucks, machinery, and so on, plus weaponry, missiles, and ammo—with a troubled history in the US. Among other issues, the Bush administration slapped it with sanctions in 2003 for selling missile-related products to Iran.
Norinco, through its subsidiaries, is on a shopping spree. Kiekert, the leader in the niche of door lock systems, was an obvious target. With 4,000 employees, it sold over 41 million systems worldwide in 2011. Lingyun Group, which makes automotive door components for the Chinese market, is hoping to use the acquisition to get its foot in the door with Kiekert’s customers in the US and Europe. Perhaps to allay certain anxieties, Kiekert’s press release states that Lingyun Group is a “publically traded” company—though Lingyun’s own website states that it is a subsidiary of Norinco and that one of the ten joint ventures and limited companies in the group is publically traded.
Chinese companies have been on buying spree. In 2011, Chinese companies invested in 158 projects in Germany, according to Germany Trade & Invest (GTAI). It made China "by far the most important investor in Germany," said GTAI CEO Michael Pfeiffer. The US has dropped to second place with 110 projects in Germany (based on number of deals, not size).
"Europe is a gigantic market, and investors are looking for the safest and largest location, and that is Germany," Pfeiffer said to explain the phenomenon. On the other hand, the amount that German companies want to invest overseas dropped sharply from €100 billion in 2011 to €70 billion in 2012, according to a survey by the Association of German Chambers of Industry and Commerce (DIHK). They’re reacting apparently “to the slower pace of the world economy, the debt crisis, and the risk-averse banks.
Chinese companies are following the government’s five-year plan to buy into strategic areas, such as IT, finance, and the auto industry. They’re buying turnaround situations, like bankrupt automotive component supplier Saargummi, or healthy companies such as concrete-pump maker Putzmeister whose pumps made history in Chernobyl where they were used to dump concrete on the reactor, and in Fukushima where they were used to douse the reactors with water. And perhaps this fame induced Sany Group, a Chinese construction-equipment maker, to acquire Putzmeister in January 2012. And in a different kind of deal, the State Administration of Foreign Exchange (SAFE), which manages China's foreign reserves, quietly accumulated stock in Munch Re Group, whose largest single shareholder, with 10.2%, is Warren Buffet’s insurance empire. By August 2011, SAFE’s stake exceeded the 3% limit that triggered disclosure.
The question is still open if Chinese executives can adjust their management methods to German business culture—though this is probably no more difficult than what German managers have to do in their ventures in China. And the fear persists that Chinese investors only seek intellectual property and technologies, and once they have acquired and repatriated them, that they will close German production locations. But Chinese companies also invest in Germany in order to gain access to the European market, which would indicate a desire for a permanent presence.
And there has been a sea change in the auto industry. Not long ago, if a Chinese investor wanted to buy a German component maker, its customers—VW, BMW, or Daimler—would veto the deal and it would go nowhere. But now German automakers are investing hand-over-fist in China where they expect to make the majority of their worldwide profits in a few years. In return for this access, the Chinese government sees to it that Chinese companies can go shopping for component suppliers in Germany. And the Kiekert deal, unthinkable a few years ago, is the latest incarnation of that quid pro quo.
The Chinese, however, appear to have little appetite for the French auto industry, which is reeling from sagging sales as consumers are getting hammered by fuel prices that have been hitting one record after another. Read.... The $10-Per-Gallon Gas Has Arrived, In Paris."