On the Dilemma of Overseas Acquisition of Chinese Private Auto Companies

Saab’s acquisition failed to come to an end. The industry’s huge loss to the Chinese due to the failure of the acquisition was also quite sad. Looking calmly down, we believe that the current difficulties of overseas mergers and acquisitions by Chinese auto companies are mainly caused by three major drawbacks.

First of all, from an overall perspective, Chinese auto companies lack a clear strategic plan for overseas mergers and acquisitions.

Overseas M&A opportunities and domestic government support are considered to be the two most crucial drivers of overseas investment by companies. In this environment, most overseas mergers and acquisitions of Chinese auto companies are passive behaviors. The purpose of overseas mergers and acquisitions by many auto companies is not clear: to market? To technology? Need assets? Want a well-known brand? Or other? In the end, it became the result of mergers and acquisitions.

For example, the decision made by Nanjing Automotive Group to acquire Rover in the UK was very hurried. After the acquisition was completed, Nanjing Automobile discovered that the intellectual property rights of some related brands, models and powertrains in the assets had already belonged to Honda, BMW, SAIC, etc. Home auto companies cannot directly use acquired assets for product development, and asset utilization is in a dilemma.

As a result, only 3 days after winning the bid, NAC revealed its intention to sell Rover assets in an attempt to avoid huge risks and empty capital after the bid. The "Pang Pang" acquisition of Sabo, the final issue is also in the General Motors on the issue of intellectual property rights do not give up on, and the haste response to the problem also reflects the company's prior preparations for the lack.

Secondly, Chinese companies often pay too much attention to the transaction price when they go overseas, and they lack understanding of the potential risks of the acquired company and the integration challenges after the merger.

Chinese auto companies’ overseas investment lacks due diligence on local policies and regulations, trade unions, market dynamics, competitive trends, customers, and suppliers, lacks sufficient awareness and prevention of potential risks, and lacks a thorough plan for integration after mergers and acquisitions. Ignoring the complexity of integration has led to frequent obstacles to overseas investment.

Due to the lack of comprehensive assessment and in-depth study of potential risks, Chinese companies naturally lack adequate and effective risk aversion programs. When conflicts arise, they can only passively save fire and lack effective pre-prepared countermeasures. For example, when SAIC officially became a major shareholder in the early stage of South Korea’s Ssangyong Motor Co., the cooperation between the two companies was also pleasant due to prior cooperation and planning. The company also experienced a period of market share growth. However, when the market is volatile and difficult, both parties are in the management concept. The differences and contradictions on the project are highlighted and eventually led to the failure of mergers and acquisitions.

Finally, Chinese auto companies have a serious shortage of resource reserves in overseas mergers and acquisitions, especially human resources.

China's auto industry as a whole lacks talents capable of controlling large-scale M&A projects, including talents for project management, pre-investigation, negotiation, integration planning, and implementation. However, our survey results show that most Chinese auto companies have yet to realize that lack of talent is one of the major bottlenecks in mergers and acquisitions. Instead, they consider the lack of overseas M&A experience and lack of funds as the two most important constraints to project failures. . This lag in understanding has a huge impact on Chinese companies in their overseas M&A work.

Many Chinese companies did not find out until they had conducted inspections on target companies. They could not send a professional team of professional personnel to conduct due diligence and professional negotiations overseas, let alone send a management team to the acquired company in the future. And the multinational companies that we come into contact with usually have a corresponding experienced professional team to operate overseas mergers and acquisitions, and will make full use of the strength of international professional agencies to reasonably control the pace of mergers and acquisitions.

Kearney Company believes that in the future promotion of overseas M&A, Chinese auto companies should pay sufficient attention to strategy, choose the merger and acquisition method that suits the situation of the company, and match with reasonable tactics before they can win.

First of all, we must make clear that its overseas acquisition strategy is consistent with the overall corporate vision and development goals, and fully understand that overseas mergers and acquisitions are an important part of the company's long-term development strategy.

Chinese auto companies that lack experience in mergers and acquisitions cannot cope with the acquisition of large foreign companies. Instead, they should adopt the “pearl necklace” type of overseas mergers and acquisitions, that is, priority should be given to small-scale but high-quality objects that meet their own requirements and take multiple, small amounts of money. Make acquisitions and steadily integrate. "Pearl Necklace" type mergers and acquisitions, if implemented properly, can learn from each other's strengths on the basis of effective risk control, gradually establish and strengthen the company's competitive advantages, and at the same time can cultivate the company's own experience and ability to operate mergers and acquisitions.

Secondly, under the premise of determining the overseas merger and acquisition strategy that meets their own development requirements, the company needs to tactically compare key aspects of mergers and acquisitions and do relevant measures. After selecting the M&A target, the M&A party first needs to fully evaluate the M&A target through financial and commercial due diligence to identify the potential risks and impacts, and then after the scientific valuation and communication with the relevant stakeholders, the M&A target Prepare for full negotiation.

Finally, Chinese auto companies should consciously reserve and train the various talents needed for overseas mergers and acquisitions as soon as possible. Enterprises should invest in focusing on cultivating the global vision of middle and senior management personnel, and specifically plan corresponding measures in recruitment, development, and retention.

In the next few years, the global automobile industry landscape is likely to continue to face profound changes and reshuffle, and only fully prepared Chinese auto companies will be able to use this once-in-a-century opportunity to complete their change from scale (scale increase) to qualitative change (becoming The transformation of a global company will enter the ranks of the world's largest auto companies within the next ten years.