Seta insights about Current Restrictions on Chinese Outbound M&A

 

Tanya Wen, Managing Partner at Seta Capital, spoke about the current skyrocketing Chinese outbound M&A activity in the Bocconi Event "The Modern Silk Road". She offered insightful analysis on the current trends and shared transaction case studies that sparked great interest from the audience.

Tanya highlighted two key aspects concerning this trend. Firstly, although lately the Chinese government has been clamping down on outbound M&A activities, yet the focus of the increased scrutiny is on irrational capital outflows, speculative or downright fake transactions. Secondly, will continue to see a lot of activities in the sectors that have been spelled out by the Chinese government as strategic growth areas for the country, in line with China’s Five-Year Plan announced in 2016.

When asked whether she sees a change in the targeted sectors, Ms Wen underlined the fact that China is now in a catch-up period and has to acquire oversea the technology that it has not developed in-house. In particular, she expects that the activities going on in the robotics sector is likely to fade in a couple of years.

Although there is strong demand from Chinese investors for European assets, there are a number of issues that investors and sellers alike face when carrying out a deal. Ms Wen, a veteran of cross-border M&As, PE acquisitions and investment management, regrets saying that failure from both sides to acknowledge a different cultural and business settings, as well as the non-familiarity with foreign policies and rules, can pose threats to the transaction and the post-merger integration.

Ms Candice Young, M&A lawyer at Gianni, Origoni, Grippo, Cappelli & Partners, also spoke at the event. Supporting Ms Wen’s view, she explained that in contrast to US managers, European managers casually approach business meetings and therefore they tend to leave some unexploited profit on the negotiation table. Truely, Chinese investors tend to pay a higher valuation for the targets, but a good manager should also leverage on his strengths and consciously approach any deal proposal. Ms Candice attributes this to the organizational framework of the Italian and, more generally, European mid-cap companies who are usually family-owned or family-inherited enterprises.

The same thing however holds true for Chinese firms and the Chinese financial sector, where, as Ms Young puts it, competent financial advisors are a scarce —yet precious —resource.

This is why Seta Capital, relying on its insights in the Chinese and European market, as well as on the competencies and well-rounded expertise of its team, brings value to companies who want to unlock growth and profit potential in both regions. 

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