2019 First Cross-Border M&A Transaction in Shaoxing Goes to Hailiang Stock
On 31st March 2019, Zhejiang Hailiang Co., Ltd. announced that the transaction between the company and KME has been delivered and completed. Hailiang Stock acquired KME’s five factories in Europe with €119 million. The acquisition will enable Hailiang Stock to quickly establish its leading position in copper rod industry.
Hailiang Stock is one of Shaoxing's first private enterprises that adhered to the policy of “going global”. From 2007 when the company established a factory in Vietnam to 2016 when it acquired the copper processing business of Luvata, JMF (a U.S. company) to this year when it acquired five factories of KME, Hailiang Stock has strategically formed a global layout of copper processing. The road taken by the cross-border giant toward a copper processing “empire” has become wider and wider.
If You ‘Eat’, ‘Eat’ the Best
It took Hailiang Stock nearly two years to reach a M&A transaction with KME Group. KME, a global leader in the copper processing industry with its headquarters in Germany, is a giant enterprise that firstly made a breakthrough in yielding a capacity of over 1 million tons. “KME was once a benchmark enterprise for us to learn experience from,” said Ziqiang Qian, member of board of Hailiang Stock and board secretary.
In March 2017, KME under the pursuit of transformation wanted to sell its copper pipe and copper rod business. At that time, Hailiang Stock had become one of the world's largest exporters of copper pipes, but its number of copper pipes exported to Europe was still very small, only a few thousand tons. "It has been challenging to expand the European market," Ziqiang Qian revealed. He noted that the acquisition of KME is of great significance for Hailiang Stock to expand the European market.
"The copper processing giants involved in global competition were just a few, and everyone knew each other," Ziqiang Qian said. The reason why it took two years to reach the M&A transaction is that there were big divergences between the two parties concerning the M&A price and M&A business, which led to several rounds of negotiation. “In the beginning, we only wanted to buy copper rods. Later, we wanted to buy all the copper pipes and copper rods. Finally, we decided to buy all the copper rods and partial copper pipes.”
In January 2019, Hailiang Stock singed an Equity and Asset Purchase Agreement with KME to acquire its five factories in Germany, France, Italy and Spain, including more than 1,000 employees and the production capacity of 50,000 tons of copper pipes and 230,000 tons of copper rods. In 1989 when Hailiang Stock was established, it aimed at producing copper rods. Since 1996, it has shifted to manufacture copper pipes until it is now the world largest. However, its copper rods business remains standstill as the production capacity of copper rods last year reached only 50,000 to 60,000 tons. Ziqiang Qian said that copper pipes will definitely encounter a "ceiling" in the future, and copper rods will be a focus of Hailiang Stock’s future development.
Trademarks and patents are also included in the transaction, which will help Hailiang Stock to enhance its R&D technology and manufacturing capabilities of high-end copper alloy products and stand firm in the European market.
Believe in a Better Self
Usually, Chinese companies after merging and acquiring overseas companies tend to absorb advanced Western management concepts. Hailiang Stock, however, decided to export management.
Upon the delivery of five factories in Europe, Hailiang Stock sent more than 20 employees to Europe to start various integration work. “In terms of refined management, we are more efficient than our foreign counterparts,” Ziqiang Qian said confidently. “Because we are deeply rooted, which is also well-reflected in our corporate reporting that the net profit of Hailiang Stock is a few percentage points higher than the average net profit of the industry.
This confidence is not only related to the fact that Hailiang Stock has been devoting itself to its core business, but also associated with its relentless practice and strategy to “going global” earlier for cross-border transaction.
In terms of refined management, Ziqiang Qian cited two examples: inventory management and risk management. As for inventory management, Hailiang Stock did well in “purchasing raw materials 2 days in advance and placing it in my warehouse”. Because keeping the materials in the warehouse will cost. “While for many Western counterparts, the procurement cycle is one month, because they do not take capital cost into account,” Ziqiang Qian said.
In regard to risk management, after years of exploration, Hailiang Stock establishes a complete series of systems as well. "Our company has a red line— risk," Ziqiang Qian said. According to reports, copper price accounts for 90% of Hailiang Stock's operating costs. It is known that copper price fluctuates, but no matter how hard the fluctuation is, the risk influence will be minimized as long as there is a mature risk management system.
The first stop of “going global” came to Vietnam. In 2007, Hailiang Stock built a small copper processing enterprise in Vietnam. In 2008, it built a copper processing plant with a capacity of over 70,000 tons in Tien Giang, Vietnam. Today, the copper processing enterprise has become the largest local taxpayer. “A lot of Zhejiang enterprises will visit our company before building factories in Vietnam,” Ziqiang Qian said, adding that the ten years practices in Vietnam has accumulated rich experience in overseas operation.
In December 2016, Hailiang Stock acquired Luvata’s three factories in Asia with 880 million CNY. Luvata, based in Finland, is one of the earliest companies in the world to serve copper pipes with a history of nearly 200 years. Along with the three factories, a large number of patents and trademarks of Luvata in the world were also acquired. In the following two years, the integration of the Luvata factories in Asia brought positive effect, reflected by greatly improved productivity and operational efficiency. In 2018, the annual sales of these three factories increased by more than 60% compared with that before M&A, and the net profit reached nearly 100 million CNY, an increase of nearly 90%.
M&A is Accompanied by Rewards
Last year, Hailiang Stock acquired more than 1,200 acres of industrial land in Houston, USA, part of which will be used to build factories this year. "It is M&A transaction in Europe whist self-built in the United States," Ziqiang Qian said. It is because Hailiang Stock now has a sales channel in the United States—JMF.
In the first half of 2016, Hailiang Stock invested US$30 million to acquire JMF. JMF, a leading wholesaler of air-conditioning and refrigeration pipes and plumbing pipes in the United States, has always been a customer of Hailiang Stock. “This is a family enterprise with a history of more than 70 years. It has established a comprehensive sales network in the United States, but the younger generation does not want to inherit,” Ziqiang Qian revealed.
In the first year of the acquisition of JMF, the synergistic effect was quite significant. “It has greatly boosted our copper pipe exports,” Ziqiang Qian said. In the past, JMF purchased copper pipes from all over the world and now it purchases directly from Hailiang Stock.
Hailiang Stock’s road to cross-border M&A, in Ziqiang Qian’s words, is “unexpected surprises will come along with M&A”. Ziqiang Qian encourages enterprises with potential in Shaoxing to actively participate in cross-border M&A when there are good M&A targets. "Then, their understanding of the industry and the company will be different, because their vision is expanded," Ziqiang Qian said, adding that they also encountered failure in M&A process, despite that, you can still learn a lot from the experience.
(This article is quoted from Shaoxing Daily. If the copyright is allegedly infringed, please contact the editor to delete.)