Professor Jun Qian: For Overseas Acquisition, How to “Gain the Benefits” instead of “Falling into the Trap”?

发布时间：2021-03-16     

Mergers and acquisitions are essential and effective tools for Chinese enterprises to be globalized.

From Wanda purchasing Legendary Pictures, Lenovo purchasing IBM, to the recent merger of Geely and Volvo, each year Chinese enterprises are doing overseas acquisitions at an increasing number and an expanding scale. Particularly when all the other parts of the world are going through economic stagnation, Chinese enterprises find that acquisition targets that once seemed unreachable have suddenly become easily accessible. Therefore, their enthusiasm for overseas “bargain-hunting” is once again activated. However, through careful analysis, it’s evident that for many Chinese enterprises, overseas acquisitions are not going that well. Commercial interests, political games, cultural differences...all the influencing factors entangle with each other. Any one failed, the whole game is lost.

So how should senior management of enterprises operate when doing overseas acquisitions so that they can “gain the benefits” instead of “falling into the trap”? FISF EMBA course Globalization of Chinese Enterprises: Mergers and Acquisitions offers ideas for solutions. The course, led by Professor Jun Qian, Executive Dean of FISF and jointly taught by experts in the industry, effectively provides practical experience and theoretical support for the acceleration of Chinese enterprises enters into the international market.

Nature of Acquisitions: “taking cities and seizing territories” with high efficiency and low costs

“In the past, Chinese enterprises held the domestic market in high esteem because it’s the biggest in the world, but now it is common to see ambitions for global expansion. This is an irresistible trend for China’s economic development.”

The acquisition course is a compulsory course of FEMBA program. Professor Jun Qian, Dean Executive of FISF, gives the class personally. He stated that it is an unstoppable tendency that Chinese economy is going out to the outer world, so Chinese enterprises should open up, and conduct rational layout of the global industry chain and commodity market by seeing international perspectives and taking acquisitions as an effective measure to achieve striding improvement of enterprise globalization.

Professor Jun Qian giving the course Globalization of Chinese Enterprises: Mergers and Acquisitions to students

“Of course, sometimes going out is just a forced act. When you have encountered the ceiling or face fierce competition domestically and there is a wide range of “blue sea” in the outside world, why not? In Qian’s view, cross-border mergers and acquisitions by Chinese enterprises are an irreversible trend. After going through decades of reform and opening up, at present they have accumulated enough and need to upgrade their industry chain. But it is only over 70 years that a complete industrial system has been built in new China, which is a quite big gap compared with old capitalist countries around the world. Acquisition is a way to rapidly acquire brands, technology and market at relatively low costs, and this is also the major driving force that encourages enterprises to seek overseas acquisitions.”

Course Teaching Logic: simultaneous promotion of both theoretical and practical regulations

“The acquisition course is actually a practical one, focusing on case analysis. However, the theoretical framework is equally important, because when you know how it works you can make basic judgment that is better than any practice. That is, whether acquisitions can create extra value for vested interests of companies.”

Though with rich experience as an independent director and consultant, Professor Jun Qian modestly leaves practical teaching of the course to experts making great contributions in their respective areas in the industry and he himself takes the responsibility for building a solid theoretical framework for students. “The guest professors will conduct specific extensions on detailed links of acquisition cases like pricing negotiation. I will start from the perspective of a scholar, and make big data analysis on the thousands of acquisition cases occurring over the past decade, leading students to find the law therein.”

Acquisition is a shortcut for enterprises to rapidly grow bigger and stronger, thus the US mode of acquisition that has been at the forefront is an unavoidable research target. “It’s true that domestic capital market is quite different from that in western countries. We need to go on a developing road with Chinese characteristics. As for how to make good use of capital market, many theories are essentially the same. Even cases happening one hundred years ago may contain theories still applicable in today’s circumstances.”

Professor Qian takes stock private placement as an example. Due to lack of performance threshold, it is used by many listed companies as a major method of financing. Currently there are two modes of private placement in China. In the first mode, major shareholders have the absolute discursive power, centralizing power on major issues like negotiating and pricing; the second mode is more open where major shareholders are only responsible for determining a general price range for dozens of institute investors to do open bidding.

“Any private placement may bring vital changes to equity institutions, vital enough to alter the direction of development. For such a significant event, it is obviously a more rational choice to introduce competitive mechanisms.” Data has also proved that companies adopting the latter for private placement are less likely to fail in later development.”

“Don’t be too confident. Competitive mechanisms are needed.” This is such an evident principle that every senior management of enterprises should know, but only when true and bloody data is presented ahead can they really stay awake.

Risk Aversion: the other side of overseas expansion

The converse outcome of successful overseas acquisitions by Chinese enterprises is the possibility of massive failure. “Actually, over 70% of all acquisition attempts fail.”

Professor Jun Qian points that the main reason for failure is the lack of sufficient strategic consideration in advance. Whether it’s a domestic or overseas acquisition, first you should figure out the purpose. What can asset ownership bring to the company? How are the rights of asset control and asset operation distributed after the acquisition? Is it possible to achieve value integration through transactions?

In addition, owing to uncertain factors like brand development, integration effect and market changes, the biggest problem of future overseas acquisitions by Chinese enterprises is whether they can “accomplish the last step”. Offshore companies and domestic listed companies operate under different laws and regulations, business practices, management systems, and corporate cultures. Failure to adjust to these differences afterwards will affect the expected integration and normal operation of business. Therefore, the development after acquisitions is a stricter ordeal for the management and integration capabilities of enterprises.

“Compared with technology, the integration of “people” is obviously harder.” There has never been a commonly recognized standard answer to the question whether the management of the acquired company should be replaced. But unlike most overseas enterprises that make bold reforms after acquisitions, many Chinese enterprises seem to lack confidence when facing the acquired companies. They will hesitate even when it is quite necessary to significantly replace the management of the acquired companies, thus missing the best time for reform.”

Apart from legal risks, geopolitical risks have also emerged under the uncertain international situation. Accordingly, in the FEMBA course Globalization of Chinese Enterprises: Mergers and Acquisitions, Professor Jun Qian shares with his students a whole set of methodology, including the way to quantitatively represent legal risks and geopolitical risks on valuation.

This course teaches you more than practical technology in company acquisitions.

More importantly, it enables you to develop an overall view from a global perspective.