Multinationals increase M&A activity in China

Medical-device maker Medtronic Inc has recently announced two acquisition deals of Chinese companies, with the two deals worth nearly $900 million.

The United States-based company said at the end of September that it would acquire China Kanghui Holdings, a Jiangsu-based maker of orthopedic devices, for $816 million in cash. The deal was completed in mid-November.

US-based medical device provider Medtronic's stand at a medical equipment exhibition in Beijing. The company acquired China Kanghui Holdings, an orthopedic devices anufacturer, for $816 million in cash in September. [Photo by WU CHANGQING / FOR CHINA DAILY]

In October, Medtronic — the world's largest maker of pacemakers — said it would buy a 19 percent stake in the Shenzhen-based LifeTech Scientific Corp for $46.6 million, with a $19.6 million convertible note representing an additional 7.4 percent stake.

LifeTech makes devices for minimally invasive surgeries for cardiovascular and peripheral vascular diseases and disorders.

Medtronic said that the acquisitions will help advance its globalization strategy, as well as expand its local presence and accelerate its access and competencies in China.

Like Medtronic, many international companies are showing their interest in boosting their M&A activity in China.

"Given the macroeconomic conditions globally and domestically, a transaction volume increase shows that multinational giants still have financial ability to do M&As, and Chinese companies are attractive to foreign buyers given their production strength as well as their marketing, and research and development resources," said Chen Fengying, director of the World Economics Research Center of the China International Economic Relation Research Institute.

According to Zero2IPO Research Center, a domestic research firm, during the first nine months of the year, the number of foreign companies' acquisitions in China dropped. M&A deals decreased to 32 during the first three quarters of the year from 51 a year earlier.

However, the average transaction volume of each deal increased to $141 million from $132 million.

Thomson Reuters data show that during the first half of the year, the deal volume of global M&As amounted to $1.1 trillion, down 21.5 percent year-on-year.

Zhou Tiru, a Zero2IPO analyst, said that multinational companies are more interested in companies in areas such as machinery and manufacturing, medical care, as well as retail.

"During the first half of the year, there were eight acquisitions by foreign companies in the machinery and manufacturing sector, compared with two a year earlier," said Zhou.

Sweden-based industrial group Sandvik AB completed its acquisition of an 80 percent stake in Shanghai Jianshe Luqiao Machinery Co Ltd.

The move allows the Swedish company to enter China's middle-end construction machinery market.

"We are always looking for suitable local companies. You will see similar investments in China," said Anders Nyren, board chairman of Sandvik.

The company's average annual sales growth exceeded 25 percent from 2002 to 2011. It now has 65 offices and 15 manufacturing facilities around the country, with sales amounting to 7 billion yuan ($1.12 billion) last year.

US-based Zimmer Holdings, which mainly makes orthopedic devices, acquired Beijing Montagne Medical Equipment Co Ltd for 350 million yuan in 2010.

Sean O'Hara, managing director of emerging markets in the Asia-Pacific region for Zimmer, said that the company is actively exploring opportunities for external development that can add value to its current business.

"We anticipate there will be more mergers as the Chinese market gets larger and attracts further investment," he said.

In the retailing sector, Wal-Mart Stores Inc has recently signed an acquisition deal with Yihaodian to control 51.3 percent of a local e-commerce website, in a bid to boost its online sales in China.

Last year, Diageo Highland Holding BV, a United Kingdom-based premium-drinks maker, paid 140 million yuan to buy a 53 percent stake in Chinese liquor maker Sichuan Swellfun Co Ltd.

"We have been looking for suitable M&A targets around the world, including China. We aim to obtain brand resources and marketing access to realize business growth," said a source at the company, who wanted to remain anonymous.

The market potential in China is luring foreign operators as they try to expand their business portfolios, and provide more tailored products, technologies and services for local clients, said Zhou, the Zero2IPO analyst.