Sinoma International Overseas Strategy and "Going Out" Experience Exchange Salon
Editor's note: As one of the largest cement engineering system integration service providers in the world, 80% of Sinoma International's business income comes from overseas. The success of Sinoma International's internationalization lies not only in its early start of "going out", but also in its understanding of how to develop overseas.
"The biggest risk for Chinese enterprises to invest overseas is to use Chinese thinking to do things abroad." Song Shoushun, chairman of Sinoma International, said at the salon of "Sinoma International Overseas Strategy and Experience Exchange of Going Out".
On September 17, the International Cooperation Center of the National Development and Reform Commission (NDRC) organized students to enter Sinoma International to share their transnational strategic thinking and overseas M & a experience. This salon is one of the series of activities of "Entering the Central Enterprises" co-sponsored by the International Cooperation Center of the National Development and Reform Commission and the Go Out Think Tank.
Song Shoushun of Sinoma International shared two cases of cross-border mergers and acquisitions at the salon, saying, "Cross-border mergers and acquisitions are a very complicated matter, and professional matters should be handed over to professional people and institutions."
Main points.
1. In the long run, the trend of market globalization makes it necessary for enterprises to "go out". But before implementing overseas mergers and acquisitions, we must think clearly about why we want mergers and acquisitions.
2. There are no collapsed industries, only collapsed enterprises. In overseas operations, enterprises should trust the local management team and realize the role change from controlling the operation process to managing capital.
3. Enterprises should make a short list of intermediaries and use them at the right time. For cross-border mergers and acquisitions, we should listen to the opinions of professional institutions, who will help with the design of transaction structure, tax planning and risk control.
Text.
Sinoma International has won the first place in the global market share for seven consecutive years, and is one of the largest cement engineering system integration service providers in the world, with more than 150 production lines in more than 70 countries and regions.
In 2014, Sinoma International's overseas market revenue accounted for nearly 80% of its total revenue, and since this year, overseas orders have accounted for nearly 90% of its total orders.
The First Order of Overseas Mergers and Acquisitions: Indian Experience
Sinoma International made its first acquisition overseas in 2013.
On January 31, 2013, the board of directors of Sinoma International agreed to invest 25.18 million US dollars to set up a wholly-owned subsidiary, Sinoma International (Hong Kong) Co., Ltd., which acquired 68% of India's LNVT equity through equity acquisition and capital increase of 150 million US dollars.
Why do we have to go to India for mergers and acquisitions? First, compare China and India: India has a population of 1.2 billion, with a cement production capacity of 350 million tons and a consumption of 250 million tons, while China has a population of 1.3 billion, with a cement production capacity of 3.5 billion tons and a consumption of 2.5 billion tons. India's cement industry has great potential.
India's current economic fundamentals are strong. With 60% of the population under the age of 25, a rapidly growing labor market, an expanding middle class and a still-low productivity agriculture, this will translate into support for economic growth. The Economist Intelligence Unit (EIU) predicts that India's GDP growth will increase from 7% in fiscal year 2014/15 (April 1 to March 31) to 7.3% in fiscal year 2015/16. Young India will not face aging until 2040, so the cement market has great potential, and India may account for 1/4 of the new global cement market.
The prediction of the development prospect of the cement industry mainly depends on two indicators: one is the annual consumption per capita, and the other is the cumulative consumption of a country or region in the process of economic development.
According to the process of industrialized economic development in western countries, the annual cement consumption per capita is about 600 kg to 800 kg. The second figure is the cumulative consumption, generally about 22 tons per capita, after reaching this figure, the industrialization of infrastructure will be basically completed, and the demand of the industry will decline.
India has a low savings rate and little capital. This provides investment opportunities for China and other countries that are implementing the "going out" strategy. Despite India's rejection of China, the bilateral trade volume is very low, and Chinese investment in India is also very low.
But it is a big country with a large population and a dividend explosion, so we think we can use India's labor force to serve international business, and our EPC (Engineering Procurement Construction) business, our management and business model. You can get a better return in India.
LNVT is a private company, founded in 2001 and registered in Chennai, Tamil Nadu, India. It enjoys a certain reputation in the field of cement technology and equipment and cement engineering in India, and has certain production and manufacturing resources. We can use this platform and use our effect to achieve the purpose of mergers and acquisitions locally.
This M & a is relatively simple, there is a framework agreement between shareholders, through the evaluation and investigation of intermediaries, and finally negotiations. Because this is a private enterprise, it only needs to go to the Central Bank of India for filing, so the merger and acquisition process is relatively simple, the main procedure is our domestic approval process, and eventually we spent 150 million yuan to hold 68% of the equity.
Now, after the merger and acquisition, the overall situation is good. We have three directors on the board of directors and one resident director there. We also send technicians and managers to govern the company and support its business operation.
Simply put, it is a company we hold, through which we transfer our technology to India. Of course, it needs secondary development to meet the requirements of India's corresponding standards, materials and other aspects.
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Germany's "Cross-Border" Exploration with Unusual Integrity
At the end of October 2013, Sinoma International announced another overseas M & A activity. Acquisition of 59.09% equity interest in Hazemag & EPR GmbH ( "Hazemag") held by SK through acquisition and capital increase.
Hazemag is a global leader in the field of crusher design and control technology, a century-old shop, whose products are also used in overseas projects. Hazemag has strong R & D capabilities, technologies, products and global marketing channels for hard materials such as crushed iron ore, gold ore and CR ore.
In the negotiations, the company was given a valuation based on the average pre-tax net profit of the previous three years, and then negotiated according to the case of past cash transactions. Negotiations for the purchase began in 2011 and the contract was signed in September 2013, with equity delivery in July 2014 and March 2015, respectively. Due to exchange rate changes, the total consideration paid for the final merger was 160 million euros.
What is the purpose of Sinoma International's acquisition of Hazemag?
Because the cement industry has met the ceiling at home, we have met the competition in the overseas market, not only facing the existing competition, but also the competition of "going out" of new Chinese enterprises due to domestic overcapacity. This new competition is a vicious competition, so we hope to enter a business that is related to the company's main business.
The scale of the global mining industry is about 10 times the scale of the global cement engineering, and the industrial cycle of the mining engineering is about two to three times that of the cement. Moreover, the production process of the mining industry is similar to ours, and our technology, business and resources can be used for reference.
The most important significance of this acquisition is to acquire the technology and brand competitiveness in the field of mining engineering machinery and equipment, and to cooperate with the existing EPC general contracting advantages, so as to lay a solid foundation for improving the self-sufficiency rate of engineering equipment in the global market, and to have a second or third main business to support our development.
Another reason for the acquisition of this project in Germany is based on the innovation system. I think we need to learn from Germany. German manufacturing, German quality, German innovation, including its brand building, are all what we lack. Because there are many problems in how to transform from extensive scale growth, from seller's market to complete competition system, and how to support our sustainable development.
Experience of Merger and Acquisition
Statistics show that about 3/4 of the "going out" M & a projects of Chinese enterprises are losing money and failing. Overseas M & a really needs a process. There must be many problems at the beginning, but in the long run, it is impossible for you not to go out, because now knowledge is internationalized and the market is internationalized. It is impossible for you to support the development of enterprises only with the Chinese market.
If others come in and we don't go out, we can't do it. But at present, we still have a lot of conditions to have and a lot to experience.
According to the process of "going out" of Sinoma International, there are several experiences to share with you.
First of all, overseas mergers and acquisitions should first consider what to acquire and why to acquire. We should not stretch the front very long and the market very wide, because we should consider the resource coverage and management coverage of the enterprise itself. At present, the requirements of the Central Committee and the State Council for us are "stronger, better and bigger", "stronger and better" in the front and "bigger" in the end.
Secondly, we should pay attention to the differences between domestic and foreign business environments, and there are huge risks in doing things overseas with Chinese thinking. Overseas development is very complex, in addition to language and corporate culture differences, the legal aspects are completely different. Chinese enterprises, whether state-owned enterprises or private enterprises, can go to the government for anything, but overseas, the government will not violate laws and regulations.
Therefore, I think the biggest risk for Chinese enterprises to invest overseas is how to do it in China and how to do it overseas. But obviously, the way to do things at home is not effective outside the home.
Germany's limited company law is completely different from China's law, it only has more than 75% of the holding is absolute holding, and the major shareholders have the final say. Otherwise, the other shareholders must agree.
Moreover, German company law has to bear legal responsibility for managers, that is to say, the power that shareholders can do is limited. What shareholders do is to approve the budget and then develop it. Many other things are managers'affairs. Shareholders have no right to ask managers how to operate. In short, India is different from India, and Germany is different from Germany.
Africa is more complicated. Africa is basically a colonial country, and even now it is inextricably linked with India, France, Belgium, the Netherlands and so on. Its laws are very standardized and complete, but it does not act according to the law.
So in Africa, you can only make a quick decision. It's better to get a reasonable return within three years. The rest is uncertain. If there is political stability and social stability, there may be some return. Otherwise, it's not clear.
Third, give professional things to professional people to do.
This experience can be explained from two angles. From the perspective of overseas operation, the state has put forward requirements for state-owned enterprises, and the management of central enterprises should change its role from managing operation to managing capital. My understanding is to do a good job in equity management, not to control the operation of enterprises. The management of the merged enterprises are local experts, so they should not intervene excessively and should be given more trust and space to do things.
In the process of M & a, it is to make a short list, select intermediaries in advance, and then these professional institutions, namely investment banks, lawyers and accountants, help to design the transaction structure, tax planning and risk control, so as to establish a good risk control system. The same is to give professional things to professional people to do.
(This article is based on Song Shoushun's speech at the salon activity of "Overseas Strategy of Sinoma International and Experience Exchange of'Going Out '". It has been abridged and has not been reviewed by me.)
Speaker profile.
Song Shoushun, male, professor-level senior engineer, enjoys the special government allowance of the State Council, and is currently the chairman of Sinoma International. He has successively served as Deputy General Manager of China Building Material Industry Foreign Economic and Technical Cooperation Corporation, Chairman of Tianjin Cement Industry Design and Research Institute Co., Ltd., Vice President of Sinoma International, Chairman of China Building Material Machinery Industry Association, Vice Chairman of China Cement Association and Vice Chairman of China Building Material Engineering Construction Association. Vice President of China Heavy Machinery Industry Association.
Institutional profile.
Sinoma International is one of the largest cement engineering system integration service providers in the world, and its main business is cement manufacturing, cement engineering and equipment engineering. The company has a complete cement engineering industry chain, and since 2004, it has rapidly entered the international arena with EPC and EP general contracting modes.
In addition to the Chinese market, it has won the first global share for seven consecutive years, and its overseas market share reached 15% in 2014. It has more than 150 production lines in more than 70 countries and regions around the world.
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