Chinese hungry for German assets

Healthy investor interest in Germany is perhaps unsurprising considering the country's competencies in industries such as mechanical engineering and car manufacturing. There alone Chinese strategic players have bagged a range of well-known companies such as Putzmeister and private equity-owned Kion in the past 12 months.

Michael Pfeiffer, managing director of Germany Trade and Invest, a foreign trade and investment promotion agency, explains the phenomenon: "Chinese investments are often made with a long-term view. Germany is a very interesting market and in addition offers great access to the rest of Europe. Businesses benefit from a great German infrastructure and research landscape and a highly skilled workforce. And the label ‘Made in Germany' is appealing to businesses too."

Increased investment will inevitably bring more competition among those buying German businesses, however it can create synergies and globalisation opportunities too, which private equity-owned companies can benefit from, says Andre Loesekrug-Pietri, managing partner at A Capital, a European private equity fund for China outbound investments: "Building business in emerging markets like China used to be a nice thing to have when there were still good growth opportunities in Europe but it's a necessity now." He adds: "One mustn't forget that the amount China currently invests in Germany ($900m) is still very limited compared to the size of the M&A and private equity markets."

He also explains that Chinese investors are new and inexperienced in the M&A market, particularly in foreign countries. This tends to lead to difficult processes when they act alone or sometimes to overspending on acquisitions. "This could provide some interesting exits," he says. Surprising for many industry professionals, KKR and Goldman Sachs did not make use of the opportunity to bag a high valuation when exiting forklift business Kion when Shandong Heavy Industry Group bought a stake for €738m in August.

Instead, the GPs opted for a capital increase for the company and entered a strategic partnership with the Chinese investor. It is widely speculated that the additional capital would come in handy in supporting the company during a major refinancing next year, however ultimately China's investment has created powerful trade links.

Furthermore, Chinese capital is already proving valuable for firms trying to raise funds, explains Loesekrug-Pietri: "We have observed a trend of money coming out of China, particularly from the sovereign state owned funds, and potentially soon from the large banks and insurance groups, that could provide German PE funds with capital resources they might otherwise find hard to raise under impending Solvency II and Basel III restrictions."

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