Chinese companies have several good reasons to “go global” in seeking M&A deals and the U.S. is an ideal target for their investment. China is the United State’s second largest trading partner. Expanding investment in the U.S. gives Chinese companies the ability to deliver worldwide service to their customers.
Chinese corporations have become one of the world’s most active in terms of M&A activity, coming in behind only the U.S. in 2013, with 367 overseas deals worth $68 billion, reports Institutional Investor. The change is part of the maturation process for a nation that nurtured a booming economy for three decades, primarily on the back of low-end production and manufacturing. With sharp growth in sectors like biotechnology, advanced manufacturing, robotics, artificial intelligence , technology , aerospace, renewable energy and real estate, Chinese investors are looking for new markets to grow these industries. M&A activity gives Chinese companies the ability to move up the value chain, with investments in the U.S. offering particular value for R&D, market access and talent acquisition. Here’s a look at what the U.S. market offers Chinese investors in M&A.
Reaching U.S. consumers
Per capita GDP is among the highest in the world, with the average U.S. worker earning $54,340 in 2014. The U.S. market is also diverse, giving business and investors access at a variety of levels and across a wide range of industries. The U.S. free trade agreement covers 20 additional countries adding more than 425 million potential new customers to those in the U.S., reports the U.S. Department of Commerce.
The U.S. also offers a highly-educated workforce that is prepared for research and development projects. The robust protection of intellectual property rights, where disputes are resolved relatively quickly and cost-effectively, is another benefit that M&A activity in the U.S. can bring to Chinese companies, particularly when investing in R&D projects.
Access to the U.S. market
Acquiring a U.S. company through a merger or acquisition can enable the Chinese companies to obtain goods and services to which they otherwise don’t have access. This can include talent, intellectual property and research and development facilities. Plus, investment in the U.S. can help Chinese nationals gain visa rights to the U.S., as 85 percent of EB-5 visas go to Chinese nationals who have invested more than $500,000 in the U.S.
Marketing in China
Another reason Chinese companies seek M&A deals in the U.S. is to acquire an international brand so that it can be brought to the Chinese market, reports international law firm Cozen O’Connor. These deals offer established marketing and sales channels, providing infrastructure for an expansion into China. Chinese companies will also seek M&A deals in the U.S. so that they can improve their product lines or their competitive market position in the U.S. In most cases, a global acquisition can increase market share and improve brand recognition for a Chinese company.
China is growing its investments
With nearly $3.95 billion in foreign reserves exchange, China’s economy has the resources for a significant increase overseas investment. And there’s room for this growth. China’s economy makes up 12 percent of global output, but represents only six percent of the worldwide overseas direct investment. Already, China’s FDI has increased by more than 3,000 percent since it entered the World Trade Organization in 2002, with its volume tripling since 2010.
Often the issues that disrupt deals between Chinese and U.S. investors are not a result of government rules or regulations, but instead they emerge from business cultural differences. For instance, Chinese investors often don’t anticipate the role played by outside advisors in U.S. deals, such as lawyers, investment bankers or financial advisers. Without these these outside specialists, Chinese investors run the risk of not looking professional or showing the proper commitment to the deal, according to Cozen O’Connor.
Finding financial advisors
Finding the right investment opportunities in the U.S. biotechnology, aerospace, renewable energy, advanced manufacturing, robotics, artificial intelligence, technology and real estate sector takes expert assistance from financial advisers with a developed industry knowledge base. In finding these expert financial advisers, it’s often best to go with smaller firms that have specialized knowledge of these economic sectors, as international law firm Cozen O’Connor notes,
Vasari Capital offers foreign investors both exceptional insight and an independent approach that helps preserve client privacy and avoid conflicts of interest while providing the knowledge, resources, contacts and experience needed to deliver successful results in M&A deals and other transactions.