07 February 2019

Germany is keeping a watchful eye on Chinese investors

Germany is seeking to tighten regulations on foreign investment targeting the country’s industries - think 2016 when China’s Midea took over listed robotics manufacturer Kuka and the concerns it raised. The latest suggestion by politicians is to create a “national investment mechanism" where the state steps in to acquire a stake in important cases “for a limited time” to block overseas companies from investment in homegrown ones.

It has already intervened to scupper some deals recently, for example, in July it blocked China’s efforts to buy a stake in one of the country’s four transmission system operators. The agreement at the time comprised Elia System Operator exercising its pre-emption right on the remaining 20 per cent stake not already owned in the holding company of 50Hertz Transmission from IFM Global Infrastructure of Australia. Once completed, Elia immediately turned around and sold this stake to state-owned Kreditanstalt für Wiederaufbau to foster “Belgian-German cooperation regarding critical grid infrastructure”. 50Hertz is responsible for the operation, maintenance, planning, and expansion of the 380/220 kilovolt transmission grid throughout the northern and eastern part of Germany.

This was about the same time Yantai Taihai Group reportedly dropped a bid for Leifeld Metal Spinning, the developer of machines for chipless metal forming in the automotive, aerospace and energy sectors and for industrial applications, after the government voted to block the proposed acquisition.

China’s appetite for outbound mergers and acquisitions (M&A) targeting companies based in Germany only really stepped up a notch in 2011, according to Zephyr, the M&A database published by Bureau van Dijk, as it was the first time that volume (be it acquisition, taking part in a capital increase or a joint venture in the European country) exceeded ten deals. Zephyr also shows the value of outbound investment by mainland-incorporated acquirors targeting Germany peaked in 2016 – the same year Midea bought Kuka and China Three Gorges took control of WindMW - and has since slowed in the subsequent two full years.

In 2019 to date, three deals have been announced featuring a Chinese company investing in, or buying, a German company: Zhejiang Hailiang is obtaining a foothold in Europe by acquiring KME’s German rod and tubes businesses, among other international assets, for an aggregate USD 135 million; Masterwork Group will take part in a capital increase by precision mechanical engineering company Heidelberger Druckmaschine; and Yongfeng Group bought concrete products maker Burkle for an undisclosed sum.

While Chinese investors still have the appetite for outbound M&A targeting Germany, there is little surprise about their ability to follow through on international deals as a myriad of factors are causing roadblocks, including Beijing’s tightening control on overseas investment - think HNA for example – and its focus on the Belt and Road Initiative, the ongoing US-China trade stand-off and its resulting impact, and the governments of targeted countries keeping a watchful eye on potential dealmaking. 

© Zephyr