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China’s construction-equipment maker Sany Heavy Industry has agreed to buy German concrete pump maker Putzmeister in the biggest Chinese-German transaction to date.
Sources say Sany and Chinese private equity company Citic PE Advisors plan to buy Putzmeister for slightly more than €500 million ($660 million), though neither party is disclosing the actual amount. The proceeds will go to two charitable foundations — Karl Schlecht Gemeinnuetzige Stiftung (KSG) and Karl Schlecht Familienstiftung (KSF) — established by Karl Schlecht, the company’s 79-year-old founder.
This is the latest in a string of outbound acquisitions that reveal China’s ambition to build bigger and stronger companies. Last year, Chinese companies spent $56 billion on overseas acquisitions, up from $50 billion in 2010 and $37 billion in 2009.
Chinese companies have already bought mid-sized German manufacturers such as Waldrich Coburg, a maker of milling machines, and Dürrkopp Adler, a maker of sewing machines.
However, Sany’s deal is more significant. It will create a global powerhouse, putting the acquisition more in line with other major outbound European shopping sprees that Chinese companies have undertaken. Already this year, Shandong Heavy Industry-Weichai bought Italian luxury yacht builder Ferretti and Chinese solar panel maker LDK Solar announced plans to buy Germany’s Sunways.
Unlike some other Chinese acquisitions in Europe, Sany is not buying a distressed asset. This is genuinely a merger that’s a win-win for two strong companies. Putzmeister develops, produces and sells construction machinery worldwide, especially concrete pumps, for the building and mining industry, as well as for tunnel construction and large-scale industrial projects. Sany, based in Changsha, China, is a large Chinese producer of construction machinery and market leader for concrete pumps in China, which is the biggest and fastest-growing market for concrete pumps and other industrial equipment worldwide.
As such, the two businesses are geographically complementary and will create a global market leader for concrete pumps. Putzmeister gets a big pocket to help it further its growth prospects and Sany gets technological know-how. Their combined products get to bear the stamp “Made in Germany” (as Aichtal, Germany, will become Sany’s new headquarters for concrete machinery outside China). From a branding perspective, that’s a good thing.
More important for Sany, it becomes a global powerhouse overnight. Building its own brand alone may have taken 10 to 15 years, but with this one merger it goes from being number one in China to the clear market leader in the world. Not bad.
According to statements from the companies, Putzmeister will continue to operate with a high degree of independence in day-to-day management. This of course remains to be seen. As Chinese companies go outbound on their acquisition sprees, the party line is: we’ll leave your employees intact and we’ll let you run the company. It’s probably worth revisiting this statement a few years from now, to see if that pans out. It is no doubt true that the company will market heavily the German premium brand — label-hungry Chinese consumers (even builders looking for products, not just individuals showing off their gadgets) are keen to buy products not made in China.
And so the companies say Sany will focus on operations in China, where Putzmeister will continue to be the premium brand. Norbert Scheuch will remain in his position as CEO of Putzmeister within Sany and will join the Sany executive board.
This transaction marks the first time that a large and well-known German Mittelstand company (which refers to the nation’s legion of small and medium-sized family groups) has agreed to merge with a Chinese partner. Liquidity was apparently not a driving factor for this transaction, but the grim economic outlook in Europe means that more companies are likely to follow suit as funding becomes tighter. So if you want to grow your company, look abroad.
“This merger is a global showcase transaction,” said Schlecht in a statement. “Sany is one of the few large Chinese conglomerates that is personally operated by the founder, who is also the majority shareholder. In fact, Liang Wengen is one of China’s most successful entrepreneurs. He not only shares our entrepreneurial spirit, but also Putzmeister’s visions and corporate values.”
For his part, Wengen, chairman of Sany, added: “With this merger, Putzmeister and Sany will create a new and global market leader for concrete pumps. Putzmeister will remain as an independent brand with its own management within the Sany group. We are looking forward to work with the Putzmeister management, which made this business so successful.”
Sources close to the deal say that both parties stood out for their professional approach to the deal — they got it done fast. This perhaps was possible because Sany is privately owned by Wengen, an entrepreneur known for his business acumen. Not being a state-owned entity means a lot less bureaucracy. In that sense, this does stand out as a global showcase transaction, as Schlecht put it, as it’s an opportunity for the world to see how Chinese entrepreneurs — not just the state — can operate.
Morgan Stanley acted as sole financial adviser to Putzmeister. Bank of America Merrill Lynch served as exclusive financial advisor to Sany. Shearman & Sterling and Jingtian Gongcheng served as legal advisors to Sany.
The transaction is subject to approval by regulatory authorities.
