Caine: May I ask, master? When I leave the temple, what will be expected of me?
Master Poe: To walk the roads of the land, and use what you have learned for the needs and benefit of the people.
Cain: Will I always know when to act and when to stand off?
Master Poe: That which you do not know, the doing will quickly teach you.
Kung Fu, Episode 26
For years there has been talk of Chinese companies coming to America. And for years, my law firm has been involved in such deals that quickly failed over something as minor as the Chinese company refusing to pay more than $5 million for something that was clearly worth at least $50 million.
Not entirely sure why, but Chinese companies have recently started getting much more sophisticated and serious. And FAST.
My law firm just started working on two deals where we are representing Chinese companies seeking to buy minority shares in well established American companies and things are actually progressing rather nicely. But because these deals are still ongoing I cannot discuss them in any detail. But I can discuss a completed deal of which I just read that is quite similar to our two, though on a much bigger scale. The Wall Street Journal just came out with a story, entitled, “Haier to Take 20% Stake in New Zealand Company,” detailing Haier’s minority share purchase in NZ’s Paykel & Fisher.
The deal gives Haier “exclusive rights to sell Fisher & Paykel appliances in China, while its New Zealand counterpart can exclusively sell Haier’s products in Australia and New Zealand.” Haier says this deal will allow it “to share the marketing, and research and development resources of Fisher & Paykel in the high-end whiteware market.” Fisher & Paykel says it will give it “a unique opportunity to fully globalize Fisher & Paykel Appliances and really drive our global expansion into parts of the world that had previously been very difficult for us to penetrate.”
I see this as a brilliant move by both companies, as it will almost certainly very quickly achieve the following:
— Give F&P the money it needs to keep operating.
— Give F&P easier access to low cost manufacturing.
— Give F&P easier access to Asian markets.
— Give Haier a bit of high end panache, thereby helping build its brand and solidifying its reputation as one of China’s most respected companies.
— Give Haier access to F&P’s globalization, marketing, and engineering skills.
I see many of the same reasons for the parties in our deals as well and I see a ton more of these deals, both large and small, coming down the pike in the next few years. Get ready.
In fact, a very reputable Chinese PE fund has asked me to be on the lookout for US buying opportunities. This fund is looking to pay between $5 to $20 million for all or a portion of small US companies with a strong brand name that are failing to or unable to take advantage of cheaper manufacturing in China. Its thinking is that it will be able to do exactly what Fisher & Paykel is seeking to do with Haier: cut production costs while also expanding the product’s global reach.
What are you seeing out there?