China carries on with its European buying spree

Chinese outbound deal activity continues apace in 2018. So far this year, announced deals involving Chinese acquirors have totalled over USD 50bn and today has seen another deal announced by a Chinese company that will no doubt attract scepticism from European financial media.

Chinese car parts supplier Ningbo Jifeng Auto has announced that it has reached an agreement to buy Grammer, the German auto parts manufacturer in which it took a 25 per cent stake via its affiliated company, JAP Holding GmbH, for USD 893m in February 2017. At the time, Grammer made it very clear via their 2017 Annual Report that the Chinese market was their “largest and fastest growing market”. However, this deal is bound to fan the flames that started burning in German and European media earlier this year, when Geeley, via two separate acquisitions on consecutive days, spent USD 9.1bn acquiring just under 10 per cent of Daimler, the luxury German car manufacturer. 

This particular deal seemed to be the trigger for rising concern in Germany that China was looking to get its hands on German industrial companies in order to enhance its own industrial engineering prowess and has also resulted in European policy makers discussing whether or not to lower the shareholding threshold of foreign investors which requires regulatory scrutiny, especially in industries deemed to be of national significance.

When looking at where Chinese acquirors have been active so far in 2018, the US leads the way by a long way by number of deals – over 86 deals in the first five months of the year totalling just under USD 4bn. While Germany attracted more than double that value, this has predominantly come from the two deals involving Daimler in February, whereas in number terms, German companies have only accounted for about one fifth of the number of deals, compared to the US. However, what’s interesting is that both the US and Germany are the two countries currently speaking the loudest about China targeting their companies.