Chinese Private Equity Investors on the Move in Germany

We are seeing a signi­fi­cant increase in acti­vity by Chinese funds. While Chinese funds have so far limi­ted them­sel­ves to real estate invest­ments mainly in the UK, both large state and private finan­cial inves­tors are now putting out feelers to Germany. On the one hand, this includes funds made available expressly and exclu­si­vely for the German target market, such as from the China Invest­ment Corpo­ra­tion(CIC), here with a volume of over EUR 750 million. In addi­tion, the opening of offices in Germany, such as Jian­tou Invest­ment(JIC) in Frank­furt am Main recently, as well as the hiring of expe­ri­en­ced invest­ment profes­sio­nals in Germany, shows that words of the past are now being follo­wed by deeds.

In the future, we will see not only the private finan­cial conglo­me­rate FOSUN, which has alre­ady been very active in acqui­si­ti­ons in Germany and Europe, but in parti­cu­lar state funds from the central govern­ment in Beijing and finan­cial inves­tors with filled coffers in China’s various compe­ting provin­ces. The land­scape here will change a lot.

Chinese private equity (PE) inves­tors still have a problem with deal sourcing so far. This does not apply to the large bidding proces­ses, often secon­da­ries, in which Chinese finan­cial inves­tors are welcome bidders and slide onto the short lists without any inter­ven­tion and also pay the desi­red premi­ums of the private equity houses, mainly of Ameri­can and English proven­ance. The chall­enge is to iden­tify often family-owned target compa­nies from the SME sector that promise high growth oppor­tu­ni­ties in the Asian market.

Howe­ver, Chinese PE inves­tors now have a recipe for this: More and more, they are looking to PE funds or family offices estab­lished on the German market as spar­ring part­ners or co-inves­tors. Whereas Chinese finan­cial inves­tors used to be rather smiled at and trea­ted arro­gantly by the big play­ers in the PE market, the Chinese are now very highly regarded. On the other hand, they now know exactly what they want. The time of long, meanin­g­less “shop­ping lists” is over. We see a very profes­sio­nal approach. Targets for indus­trial upgrading in China are curr­ently in demand, espe­ci­ally from the auto­ma­tion and robo­tics industries.

Another chall­enge is to convince the tradi­tio­nal SME that the future owner could be a Chinese finan­cial inves­tor. Howe­ver, if you put the facts and the promi­sing pros­pects of opening up the Chinese market on the table for the medium-sized company, in our expe­ri­ence the ice melts very quickly and the ground is crea­ted for cons­truc­tive talks.

While Chinese PR inves­tors were initi­ally met with rejec­tion and wait-and-see skep­ti­cism, natio­nal and inter­na­tio­nal private equity houses are now well aware that Chinese finan­cial inves­tors are not only good buyers of their port­fo­lio compa­nies, but also very savvy and networked co-inves­tors due to their proxi­mity to the Asian growth markets.

In order to drive market expan­sion in China with the acqui­red target, Chinese funds are incre­asingly pursuing the stra­tegy of brin­ging on board Chinese stra­te­gists with indus­try expe­ri­ence and jointly mana­ging the company acqui­si­tion. The compe­ti­ti­ve­ness of Chinese finan­cial inves­tors in bidding proces­ses increa­ses due to the fact that the“market roll out” of products of the poten­tial port­fo­lio compa­nies is calcu­la­ted in advance with the help of stra­te­gic Chinese market parti­ci­pants and thus premi­ums can be paid that other bidders, be they finan­cial inves­tors or pure stra­te­gists, are not able to offer at all.

About Florian Hirschmann

Florian Hirsch­mann is a lawyer and part­ner at DLA Piper in Munich and advi­ses both finan­cial inves­tors and stra­te­gic inves­tors in the field of corpo­rate law, in parti­cu­lar in natio­nal and inter­na­tio­nal private equity and M&A tran­sac­tions, venture capi­tal and joint ventures. As Co-Head of the China Desk, Florian Hirsch­mann advi­ses nume­rous Chinese finan­cial inves­tors and stra­te­gists on company acqui­si­ti­ons in Germany. As an advi­sory board member of the Cannon­ball Group, he actively advi­ses on invest­ments, struc­tu­ring issues and serves as a spar­ring part­ner for clients. Before joining DLA Piper in 2014, Florian Hirsch­mann worked for seve­ral years as a part­ner for a leading Ameri­can and English law firm in Munich and Frank­furt am Main. 

About DLA Piper UK LLP

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