Behind the cross-border mergers and acquisitions of China's LED lighting company "Shetunxiang": How to break through geographical barriers?

If we compare mergers and acquisitions to marriage, cross-border mergers and acquisitions are like a cross-border marriage. According to this logic, cross-border mergers and acquisitions by Chinese companies are equivalent to a Chinese young man marrying a foreign wife. Under the premise of having different ethnic and cultural backgrounds, can the union between the two across the ocean eventually be interpreted as a good story of a good relationship - how can they break through the barriers of separation and achieve a "hundred-year-old marriage", "a harmonious relationship" and "a happy marriage"? If Chinese guys think about this problem, Chinese companies are destined to have no way to avoid it.

Why cross-border mergers and acquisitions

Since the end of March this year, first, Jinshajiang Venture Capital took the lead in acquiring 80.1% of Philips Lumileds shares, and then, after July 19, Deep Technology Associates Kaifa Jing wanted to acquire 100% of the equity of BridgeLux in the United States. Later in the same month (21st), Feile Audio issued another announcement: Because of its "heartfelt love", it took the initiative to "propose marriage" through a non-binding letter, and first extended an olive branch to acquire the channel business that Osram of Germany planned to spin off. In less than half a year, three exciting cross-border mergers and acquisitions in China's LED industry have been reported.

As of July 27, a piece of news that GSR Capital announced that it would launch a US$5 billion global M&A fund spread like wildfire, attracting everyone's attention again. On that day, Wu Shenjun, the founder of Jinshajiang Capital, told reporters, "Now is the time for China's industrial upgrading." "China has a huge market and huge room for growth, but many industrial sectors still lack mature technology and the correct direction for industrial upgrading." "The last three to five years are the best time for China to go global." Recently, the news of cross-border mergers and acquisitions in the domestic LED industry may be one of the evidences that Chinese companies are eager to "go abroad."

In this regard, Sun Wei, a senior M&A expert at the Guangdong Semiconductor Lighting Industry Joint Innovation Center, also pointed out that as competition intensifies, the competitive strategy of being content with the domestic market is being abandoned by Chinese companies. He expects that overseas markets will gradually become the main battlefield for competition among giant companies in the LED industry, and achieving penetration of overseas markets and localization of customer services through mergers and acquisitions is an inevitable strategic choice for industry leading companies and even for the entire industry. Therefore, how to improve strategic design and execution capabilities and gradually penetrate some overseas markets through cross-border mergers and acquisitions will be the main issue faced by domestic first-tier listed companies in the next few years. This is also a step that companies in the industry must take. He further said that companies that make reasonable arrangements as soon as possible will seize a favorable strategic position in the next round of competition.

According to past experience, the results of cross-border mergers and acquisitions certainly include successes and miscalculations, just like the end of every cross-border marriage, there are also blessings and misfortunes. In fact, cases of Chinese companies involved in overseas cross-border acquisitions are not new. Relevant data show that as early as 2004 to 2007, cross-border mergers and acquisitions by Chinese companies had entered an active burst cycle. At that time, the transaction volume of overseas asset acquisitions jumped from US$5 billion to US$31 billion, a sharp increase of six times, showing a prosperous scene. At least that's the surface. Although no one would like a beautiful love story to start and end with a tragic love accident, but God does not want this kind of thing to happen from time to time. Later, time also proved that in the above-mentioned cross-border mergers and acquisitions between 2004 and 2007, only a handful of Chinese companies succeeded.

However, a coin can have two sides. From the perspective of benefits, for Chinese companies that were in trouble in overseas mergers and acquisitions at that time, this expensive public lesson was not in vain. During the routine self-examination afterwards, excluding some external factors of the global economic environment at that time, the executives of Chinese companies seemed to have gradually discovered and begun to face up to many of their own problems: this included a lack of experience in determining suitable M&A targets and formulating successful M&A integration strategies, as well as a lack of management capabilities, and personally experienced the huge hidden dangers brought about by cultural differences... These points that they had not paid enough attention to before had laid fatal foreshadowing for the final failure of cross-border M&A plans in the past.

It can be seen that although Chinese enterprises’ cross-border mergers and acquisitions solve the problem of global resource allocation to a certain extent, they also contain various crisis risks due to their own lack of experience and weak awareness of protection. Deviations in risk management during M&A will most likely lead to M&A failure, reduced operating efficiency, and even serious losses. Therefore, in cross-border mergers and acquisitions, a high degree of calmness and vigilance must be maintained at all times. Companies should determine a sound M&A strategy before M&A takes place, rather than letting the inner demons of opportunism take hold.

“Going global” has become a general trend, and we can only choose to adapt to it. When the craze of cross-border mergers and acquisitions really comes back, and China's LED companies are also preparing to gear up to welcome various cross-border marriages, it is still crucial to learn from some past failures and how to counterattack and become the "mother" of success.