China: No Longer a Hidden Gem

by Anthony Noto Mergers & Acquisitions

Long gone are the days where globetrotting bankers could view China as a wide open playing field for doing deals, according to a panel at ACG’s Business Conference in Los Angeles yesterday.

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During PricewaterhouseCoopers LLP’s “Doing Smarter Deals in Emerging Markets” discussion at the Beverly Hilton Hotel Wednesday afternoon, the consensus among the panelists was that even though the middle market has arrived in droves throughout China, and their Eastern counterparts are savvier dealmakers, there are still lingering cultural differences that make M&A in the region difficult.

“It’s no longer a hidden gem,” PwC’s Alan Chu told those in attendance regarding China’s evolution. “Capital is not an issue with many of these companies.”

Fellow panelist Hanson Li of Hina Group agreed.

“Companies in China are much more sophisticated and secure,” he said. “Why should they have a low valuation?”

For that, he pointed to China’s ability to grow its wine and spirits industry, as well as capitalize on the sale of women’s garments, referring to E-commerce lingerie company La Miu as “the Victoria’s Secret of China.”

Chu chimed in, calling aerospace the industry to watch for Chinese dealmakers, adding that M&A is more about “collaboration and globalization” between China and U.S. companies rather than the emerging market stereotype of doing deals quickly.

“What defines success in China is people on the ground,” adds panelist Colin McIntyre, a PwC partner, stressing the importance of cultural adaption as opposed to enforcing the Western way of doing things. “The biggest risk is reputational risk.”

Still, just as the two global economies challenge each other on a broader scale, so do middle market deal pros within the region because of the cultural differences that they face. Between language and dialogue differences, clashing accounting practices and the need for building relationships, wrapping deals up in China generally takes longer than anywhere else, they said.

For example, regulatory issues may differ from city to city, Chu said. Coupled with the growing need for Chinese companies to localize their services, and U.S. partners must make themselves privy to the subtle differences between Shanghai, Beijing and Hong Kong.

Another is structural differences, according to Walt Disney Co. senior vice president of global development Eric Muhlheim, who also spoke on the panel.

Disney looked at numerous acquisition targets in China, Muhlheim said, but in keeping with the integrity of the company’s brand, it “chose to go it alone” and grow organically in the region once it realized the structural differences of those competitors were too steep to integrate.

That differs from its acquisition strategy in another emerging market, Sao Paolo, Brazil, he said, where it is more likely for Disney to do deals because of “specialized assets” that Disney wouldn’t be able to get on its own.

During times like that, challenges are met because emerging markets provide such a wide avenue of opportunity. Even though, as McIntyre puts it, “It’s [never] easy to do business there.”

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One Response to “China: No Longer a Hidden Gem”

  1. atex pda’s…

    […]China: No Longer a Hidden Gem « China Lawyer[…]…

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