Philip Leung: China Outbound M&A

Chinese companies are making more and more overseas acquisitions.  Philip Leung, who leads Bain's Mergers & Acquisitions practice in Asia-Pacific, describes three major principles that can help acquiring companies maximize shareholder value.

Read the Bain Brief: More Rigor Means Better Results in China’s Global Pursuit

Read the transcript below.

PHIL LEUNG: There are three phases of Chinese companies making overseas acquisitions. Phase one, just primarily for natural resources. Phase two, they're actually looking [at] or acquiring brands and capabilities so they can bring back to the home market to win. Phase three, which is the current phase we're in right now, Chinese companies are not only making overseas acquisitions to help them to win in the home market, but also to help them to access revenue and profit pools outside of China.

However, these overseas acquisitions will require different approaches and different rigors for these Chinese companies to be successful. One example is Didi. They acquired a Brazilian player called 99. And Didi invested a lot of resources and time to do the homework properly, prepare for the investment. They spent a lot of time and resources on due diligence upfront.

They looked at the brand, the customer efficacy, the government regulatory environment, as well as assessing the scalability of the business model. They started in as a minority investor, and then over time, they acquired a full majority control.

Another example is a company called Ruyi. They are in the apparel or textile business, and they made an acquisition of this company called SMCP, which is a European fashion player. And Ruyi figured out that they actually don't have to exercise full control on a scope acquisition and let the SMCP management team to run the business, and it worked out really well.

So as more Chinese companies make overseas acquisitions, we see three major changes going forward that are important to highlight. Number one, the importance of investing the time and resources to do the homework, put in the rigor on diligence to assess the investment.

Two is actually build a repeatable model that they can not only succeed in one acquisition but also apply those learnings and key success factors to other acquisitions. And then three, just having the different ways of working with the target companies to ensure that they create maximized shareholder's value.

Read the Bain Brief

More Rigor Means Better Results in China’s Global Pursuit

As they make more overseas acquisitions, Chinese companies are learning the critical nuances that contribute to a deal’s success.