China National Chemical Corporation’s approach to cross-border mergers and acquisitions
Strategy-based, success based on capabilities
——China National Chemical Corporation’s approach to cross-border mergers and acquisitions
In 2006, China National Chemical Corporation intensively conducted three cross-border mergers and acquisitions, all of which achieved great success. Compared with some Chinese companies that have encountered obstacles in their internationalization, the logic of China's chemical industry's successful internationalization lies in the following: the experience of early international operations is "gene", domestic mergers and acquisitions and reorganization activities are "basic", and cooperation with first-class professional service institutions is "basic"
Under the guidance of the strategic positioning of "New Chemical Materials", China National Chemical Corporation has formulated a multi-level international business strategy and successfully implemented wholly-owned mergers and acquisitions of three foreign companies in 2006. The target company They are all companies/businesses affiliated to a well-known large group with "dual leadership" in technology and market. Their technical resources and management resources have formed a complementary and synergistic effect with the production resources and market resources of ChemChina. The three cross-border mergers and acquisitions have many things worth recalling - such as strategic design based on opportunities, characteristics and reality, multi-level and sufficient strategic preparation, the art of grasping strategic timing at different levels, and cultural integration before the transaction, etc. .
Strategic Positioning, Complementarity and Preparation
At the beginning of its establishment, ChemChina’s overall strategic positioning was “old chemicals, new materials”, that is, the foundation inherited by generations of chemical workers, and in the process of restructuring In the process of transforming state-owned chemical enterprises, new chemical materials should be developed and appropriately extended upstream and downstream to demonstrate control, influence and driving force in key areas and important industries of the chemical industry.
Clear strategic positioning
The strategic positioning of "old chemicals, new materials" takes "new chemical materials" as the main business scope, and emphasizes on key technical fields and new chemical materials. The industry reflects control (possessing independent intellectual property rights and mastering key core technologies), influence (leading positions in certain market segments) and driving force (driving downstream industries and China's entire chemical industry). In addition, this strategic goal attaches great importance to the strategic function of mergers, acquisitions, restructuring and transformation, and has the strategic flexibility to "appropriately extend upstream and downstream".
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Three cross-border mergers and acquisitions of ChemChina in 2006
ChemChina was established in May 2004, approved by the State Council, among Blue Star Group, Haohua Group and other large state-owned enterprises were established on the basis of enterprises formerly affiliated to the Ministry of Chemical Industry. Their main business is new chemical materials and special chemicals. Ren Jianxin serves as the general manager. ChemChina has 118 production and operation enterprises, 24 scientific research institutes, and more than 10 listed companies. In the past three years, China Chemical's sales revenue has increased by an average of 91%, and profits have increased by 72%. In 2007, its asset size and sales revenue exceeded 100 billion yuan.
In one year in 2006, ChemChina completed three cross-border mergers and acquisitions and has been operating smoothly to this day. This is the only practice among Chinese companies. The three mergers and acquisitions were respectively completed in January, April and October 2006 of French Adisseo, Australian Qenos and French Rhodia silicone and sulfide companies. Acquisition of 100% equity in the business.
Synergy in line with strategic positioning and based on complementarity
In M&A theory, synergy is considered a key factor. ChemChina also attaches great importance to synergy in its cross-border mergers and acquisitions.
First of all, the main business of the target company is in line with the strategic positioning of the acquirer, and the businesses of the acquired company all fall within the business scope of China Chemical Industry's "New Chemical Materials".
Secondly, the core technology of the target company is something that Chinese companies have not yet mastered. For example, Adisseo has 398 methionine authorized patent technologies (755 patent applications), and Rhodia has 201 silicone authorized patent technologies (521 patent applications).
Thirdly, the target company’s main products have development prospects in the Chinese market. For example, methionine is a major animal nutritional feed additive. As the world's second largest feed producer, China has huge market demand and has an annual growth rate of 10%. Another example is silicone products and downstream deep-processing products, which have good actual demand and development prospects in the Chinese market.
Target company: in a leading position in both technology and market
Unlike other Chinese M&A targets, most of which are in a period of loss or decline, the three target companies of ChemChina’s M&A all have relatively large High technical status and market position. For example, Adisseo is the second largest methionine manufacturer in the world, with a market share of 29%. The vitamin business ranks third in the world, with a market share of approximately 21%. The biological enzyme business ranks fourth in the world, with a market share of 9%. Qinos's management capabilities are among the best in the industry, and its safety, environmental protection, and health management system (SHE) is among the world's leaders. Currently, ChemChina is transferring its SHE system to domestic enterprises affiliated to the group for promotion.
Well-designed merger plans and processes
First of all, the three cross-border mergers and acquisitions all involved 100% ownership of the company’s equity and business control rights, without taking any steps to establish ties with the original shareholders or business controllers. Joint venture method. This wholly-owned approach lays a solid foundation for post-merger corporate governance and operational management. For example, ChemChina fully controls the board of directors, which not only ensures the implementation and execution of its development strategies in overseas companies and global markets, but also provides opportunities for senior managers of the original companies to join the board of directors, which was difficult to achieve before mergers and acquisitions; with wholly-owned ownership We will use overseas enterprises as "bases" to conduct corporate mergers and acquisitions in the global market to further consolidate and expand the influence and control of ChemChina; transfer the technical and management resources owned by overseas enterprises to the Chinese market for integration, and enhance the competitiveness of ChemChina. The overall organizational capabilities lay the foundation for the realization of the strategic goal of entering the "Fortune 500".
Second, the acquirer and the target company exchange senior management personnel, breaking the traditional model of cross-border M&A management integration. In the traditional merger and acquisition integration model, once the acquiring party obtains 100% of the company's equity and business control, it will often send more managers to assume senior management positions, while the original senior staff will leave one after another. ChemChina broke through this model and only assigned a small number of managers to the target company, mainly serving as deputy positions. The positions of the original senior personnel basically remained unchanged (only the CEO of Adisseo was replaced by the original COO), and the positions of some personnel were promoted (such as onto the board). Drucker once proposed a criterion for testing the success of mergers and acquisitions: the position of the senior management of the acquired company should be promoted within one year. This principle is supported by ChemChina.
Third, cross-border mergers and acquisitions are combined with domestic new construction. ChemChina is exploring a new model that organically combines cross-border mergers and acquisitions with domestic new establishments at a specific business level, which is relatively rare in the practice of Chinese companies. For example, ChemChina used Adisseo's world-leading methionine production patented technology to build a new methionine plant in Tianjin with an annual output of 150,000 tons.
M&A strategy based on vision and capabilities
M&A practice shows that the success of M&A strategy mainly depends on the combination of the strategic vision of the acquiring party and the professional capabilities of the service organization. ChemChina’s strategic foresight is mainly reflected in: its understanding of the characteristics and essence of the industry, the strategic preparation and strategic timing of the acquirer, and the cultural integration of the entire transaction process (especially before the transaction). These are other cross-border M&A cases of Chinese companies. , there are relatively few strategic factors.
Strategic Design Based on Reality
According to Professor Chandler’s research, in the early 21st century, the chemical industry no longer became a truly high-tech industry because chemical science no longer produces basic new learning to radically stimulate the commercialization of new products.
Based on a clear understanding of the territory of the chemical industry, Ren Jianxin formulated an international business strategy for China Chemical Industry with cross-border mergers and acquisitions as the main content: Large foreign chemical companies are facing various challenges due to cost, market and environmental pressures. For this reason, excess production capacity and backward production equipment will be gradually transferred to my country, and technology will be blocked, making the development space of my country's traditional chemical industry with scattered layout, small scale and backward technology even narrower. This requires our relevant enterprises to increase the pace of "going out", control high-quality corporate resources from a global perspective, and enhance the level and level of the industry. The adjustment of the international industrial division of labor and the rapid development of China's economy have provided opportunities and challenges for us to implement international operations. The best and fastest way for Chinese enterprises to enter the international market and integrate into the international society is to acquire and merge internationally renowned enterprises and brand, but it requires long-term preparation and running-in. International mergers and acquisitions are not just business activities, but also human communication and cultural integration.
This cross-border M&A strategy has the following characteristics:
(1) Seizing the opportunity of restructuring and adjustment in the global chemical industry. The global chemical industry restructuring began in the 1990s, and the global chemical industry mergers and acquisitions reached its peak in 1999. It has generally slowed down since then, but is still active to this day.
(2) Understand the essential characteristics of the chemical industry. The world's major chemical companies each have their own "sphere of influence." Under such circumstances, latecomer companies cannot take advantage of the "first-in-command" opportunities brought by new technologies and catch up. They can only adopt cross-border mergers and acquisitions to acquire the assets of established multinational companies. Take over the businesses and markets that they actively or passively give up.
(3) The main purpose is to obtain technical resources, mainly based on the general lack of core technology in China's new chemical materials industry, and to establish its own "sphere of influence" in the global market.
(4) Based on long-term and adequate strategic preparation (especially human communication and cultural integration).
(5) Leave room for international capital operations. The sales revenue and profits of the four companies acquired by ChemChina reached historical highs after the merger. The acquisition only cost 9.5 billion. The valuation multiple at the time of acquisition was about 4 times the earnings before interest, taxes, depreciation, and amortization (EBITDA) of the year. , and according to the evaluation of the International Equity Investment Fund, the current market value of these four companies reaches 16 to 18 billion yuan, that is, they can exit through the capital market at more than 7 times EBITDA. To this end, after Blue Star completed the merger and acquisition, it successfully introduced the Blackstone Group, the largest private investment fund in the United States, to subscribe for 20% of the shares (including overseas assets) using the market value method, raised US$600 million in equity funds, and laid the foundation for further overall listing.
Multi-level and adequate strategic preparations
ChemChina’s three cross-border mergers and acquisitions were all carried out on the basis of adequate strategic preparations, which are mainly reflected in the following aspects:
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(1) Strategic starting point preparation at the overall scale and strength level. During the Blue Star Group era, Ren Jianxin began to think strategically about cross-border mergers and acquisitions, but he was not in a hurry to act. The main reason was that there was a large gap between the overall scale and strength of Blue Star Group and the subject qualification requirements for cross-border mergers and acquisitions at that time. Therefore, Ren Jianxin's main task is to acquire and reorganize domestic chemical companies, first expand the scale of the company, and at the same time actively promote the establishment of China National Chemical Corporation. When ChemChina was established in 2004, its total assets and sales revenue were nearly 30 billion yuan, and many of its products ranked first in the Chinese market and at the forefront of the Asian market. This is why Ren Jianxin has prepared the scale and strength for launching the cross-border M&A strategy in 2005/2006.
(2) Strategic talent preparation at the organizational level. When Ren Jianxin was the general manager of Blue Star Group, he established an international department and overseas offices to be responsible for the investigation and research of overseas markets and enterprises, and brought together a group of outstanding talents engaged in international operations. Later, most of them became ChemChina's international The backbone of the business.
(3) Preparation of strategic intelligence on global chemical industry dynamics. ChemChina was established on the basis of an enterprise directly under the former Ministry of Chemical Industry. The leaders and relevant professionals of the enterprise have a comprehensive and in-depth understanding and grasp of the overall situation of the chemical industry at home and abroad. At the same time, it also has a specialized economic and technical research and consulting agency for the chemical industry. China National Chemical Information Center is one of the professional companies affiliated with China Chemical Industry and is the largest and most powerful strategic/competitive intelligence research institution in China's chemical industry. Most of the 24 scientific research institutes owned by ChemChina hold the most cutting-edge technical information in their respective technical fields. Therefore, it can provide powerful intelligence services and research support for ChemChina’s cross-border mergers and acquisitions, especially in the early stages of merger and acquisition target selection.
(4) Strategic psychological preparation for the target company and related personnel. Adisseo and Rhodia are both foreign companies that have been dealing with Blue Star Group and ChemChina for more than three years. First, they negotiated technology transfer, but failed; then they negotiated to establish a joint venture, but failed; Rhodia and ChemChina established a strategic alliance and partnership in 2004. During this process, the frequent contacts between senior personnel of both parties not only enhanced understanding and recognition, but also directly obtained timely and accurate information from the other party, which undoubtedly laid a good psychological foundation for future mergers and acquisitions.
Looking for, seizing, and creating M&A opportunities
When ChemChina was established, all strategic preparations were basically in place, so cross-border M&A was officially taken as the main task and fully launched and implemented.
From the perspective of the time range selection of cross-border M&A transactions, it is extremely rare to complete three M&A transactions in succession in 2006. The success rate of such high-density cross-border M&A transactions is low and it affects the resources and capabilities of the acquirer. Very demanding. The reason why ChemChina has been able to successfully achieve this is mainly due to the relatively sufficient preparations for various strategies in the early stage. ChemChina has been following these companies for a long time, some for as long as three years. It not only has a comprehensive understanding of their historical and cultural background, production capacity, technology, market, prospects, etc., but also has frequent meetings with the major shareholders and executives of these companies. Contact and becoming good friends also deepened the other party's understanding of ChemChina's corporate culture, economic strength and development prospects, and enhanced their recognition of corporate values. After more than three years of strategic preparation, multiple mergers and acquisitions were completed in the same year, which was a "natural success" for ChemChina.
The art of timing individual M&A transactions was particularly evident in the mergers and acquisitions of Adisseo and Rhodia. Due to the impact of SARS, the global poultry population and breeding volume have decreased, and Adisseo's methionine product production, sales and profits have been greatly affected. ChemChina believed that this was a good opportunity to reduce acquisition costs, so it took the initiative. Based on years of communication, the two parties formally signed a contract in 2005, realizing a low-cost acquisition. The overall financial situation of Rhodia Group encountered difficulties in 2004. ChemChina seized this rare opportunity and facilitated the formal signing of the contract between the two parties in October 2006, which not only eased the financial situation of Rhodia Group, but also enabled ChemChina to obtain benefits. Complete silicone business.
In a certain M&A transaction, there are multiple key time points, such as the time of initialing the agreement, the time of formal signing, the time of formal delivery, etc. In arranging the delivery time, ChemChina's main consideration is to maximize business interests, rather than "beautify" the financial statements at the end of the year, and try to achieve delivery at the beginning of the year. The control of the delivery time of Kainuos Company further reflects the art of seizing the opportunity of ChemChina. Since it adopts a cashless and debt-free merger and acquisition method, ChemChina takes into account the continuity factor of Kainuos Company’s investment in technological transformation and has made great efforts in its own development. Maximize commercial interests and achieve delivery within the affordability of the counterparty.
The above-mentioned grasp of strategic timing at different levels is not only a concrete manifestation of Ren Jianxin's M&A art and experience, but also rooted in ChemChina's strategic preparations. Both are indispensable.
Cultural Integration in Transactions
In ChemChina’s documents and materials related to cross-border mergers and acquisitions, there is only “cultural integration” but not the word “cultural integration”. There is only one word difference between "fusion" and "integration", but they reflect completely different concepts and principles: the premise of integration is to respect each other and regard both parties as equals, while integration reveals the aura of a "conqueror". Mergers and acquisitions are often regarded as "successful ones", but acquirers must have a clear understanding of this: once they consider themselves "successful", the success rate will be greatly reduced.
Ren Jianxin once explained the "harmony" business approach in an internal speech: "Harmony without difference" means integrating the traditional Chinese culture of "harmony" with our business approach. Combined. "Harmony" internally means the integration of seeking common ground while reserving differences, learning from each other's strengths and complementing each other's weaknesses, and sharing the same boat through thick and thin, so that everything in the family will be prosperous. Externally, it means being harmonious and making money in the right way, paying attention to health and the environment, integrating nature and man, building a harmonious enterprise, doing things without fighting, benefiting without harm, and having the courage to shoulder social responsibilities. "Different" means taking a differentiated path of introducing, digesting, absorbing, and then innovating to develop new chemical materials.
ChemChina’s cultural integration is not limited to after the merger and acquisition, but runs through the entire process of the merger and acquisition transaction. This kind of cultural integration before the transaction is one of the main contents of strategic preparation, which is mainly reflected in the exchange, communication and mutual recognition of the core figures of both parties. In the three mergers and acquisitions cases, Ren Jianxin always personally received the visits of foreign personnel. While obtaining dynamic information about the target company and key personnel, he constantly introduced and disseminated the corporate vision and strategic intentions of ChemChina; Ren Jianxin also repeatedly Inviting the other party to your home not only establishes a good working relationship, but also establishes a friendship between the key personnel of both parties. It is the many details of the contacts and exchanges between the two parties before the transaction that lay the foundation for mutual trust between the two parties.
Ren Jianxin said that mergers and acquisitions should not have the mentality of an occupying army, but should consider problems and arrange work from the perspective of the managers and employees of the acquired companies, so that they feel respected and interact with each other. Be equal and win each other's understanding and respect.
Therefore, the operation of the enterprise after the merger can maintain stable personnel and stable business. In the vast history, every nation has formed its own culture and history that it is proud of. It is very important to learn and respect the history and culture of each country and nation. We are the "boss" in terms of asset relations, and they are the "teachers" in international operations.
Success lies in overall organizational capabilities
Why can ChemChina form innovative strategic ideas and take effective strategic actions? What is the internal logic behind the success of its cross-border M&A strategy? We must go deep into ChemChina's overall organizational capabilities to find the answer.
The Modesty of Strategic Entrepreneurs
Strategic Entrepreneur is a new concept proposed by Western academic circles. Its connotation refers to "the combination of entrepreneurship and strategic management capabilities." ". The essence of a strategist is visionary, and the core of an entrepreneur is the ability to innovate. A strategic entrepreneur combines a strategist and an entrepreneur. China's strategic entrepreneurial capabilities are mainly reflected in three aspects: entrepreneurial capabilities, industry restructuring capabilities and transnational operating capabilities.
Ren Jianxin is a strategic entrepreneur. In 1984, Ren Jianxin used a patented technology, borrowed 10,000 yuan, and led 7 and a half people to found "Blue Star Cleaning (Quotes Stock Bar)", creating China's industrial cleaning industry and market. After moving its headquarters to Beijing in 1996, Blue Star Group began the reorganization of China's chemical industry, acquiring and reorganizing more than 70 domestic chemical companies in various ways. In May 2004, the China National Chemical Corporation, based on Blue Star Group and Haohua Group, was established, reorganizing 30 domestic companies. So far, Ren Jianxin has had experience in reorganizing 107 domestic companies. In 2006, the success of three cross-border mergers and acquisitions led by Ren Jianxin was not only the result of years of strategic thinking and strategic preparation, but also became the basis for larger-scale cross-border mergers and acquisitions of China Chemical Industry.
Among Chinese entrepreneurs, strategic entrepreneurs who possess the above three abilities at the same time are rare. In addition to Ren Jianxin, Zhang Ruimin is one of them. Other entrepreneurs either only need to possess a certain ability due to the characteristics of the industry, or they only possess two of the above three abilities at the same time, or they seriously lack a certain ability.
On November 28, 2007, Ren Jianxin gave a speech at Peking University entitled "The 'Three Character Classic' of China Chemical's Overseas M&A". When the audience asked what was the primary factor in the success of cross-border M&A, Ren Jianxin The answer is only two words: "humble". Looking back at Ren Jianxin's 24 years of entrepreneurship, we found that "humility" is indeed the key to his success.
The successful logic of organizational learning
The international vision and basic capabilities formed through early internationalization experience. In August 1991, Blue Star Cleaning established the Sino-Japanese joint venture "Blue Star BC Cleaning Technology Co., Ltd." in Lanzhou, and also established a branch in Japan; in April 1992, Blue Star Cleaning established "Blue Star BC Cleaning Technology Co., Ltd." in Kiev, Ukraine. "Romini Cleaning Technology Co., Ltd."; in November 1993, Blue Star Cleaning and American West Environmental Group Co., Ltd. jointly established "American Blue Star Company" in Los Angeles... These early international experiences are what many Chinese companies lack. The international vision and basic capabilities it formed have become the "gene" of China Chemical's transnational operations.
M&A and integration capabilities based on domestic M&A and restructuring experience. Since the merger of Jiangxi Xinghuo Chemical Plant in 1996, by the end of 2007, Blue Star Group and ChemChina had merged, acquired and reorganized more than 100 domestic production companies and taken over 24 scientific research institutes. Such a large-scale, high-density and high-success rate M&A and reorganization activities have enabled Blue Star and ChemChina to accumulate rich direct experience and train and train a large number of senior management talents with M&A and integration capabilities.
It is difficult to guarantee the success of cross-border mergers and acquisitions by relying on the above two factors alone, because today's environment is different from that of the last century, and domestic mergers and acquisitions are also different from cross-border mergers and acquisitions. In this regard, ChemChina hired world-class professional service organizations and experts to solve the problem. They brought professional experience and capabilities in cross-border M&A, and worked closely with the M&A team of ChemChina. The overall capabilities formed on the basis of complementarity have become cross-border M&A. The key to success. This is a kind of organizational learning. The experience of early international operations is the "gene", domestic mergers and acquisitions and restructuring activities are the "basic", and cooperation with first-class professional service institutions is the "basic". "Three bases in one" is the complete logic of cross-border mergers and acquisitions of China Chemical Industry.
The way to sustain organizational capabilities
Whether it is from the financial data of corporate operations or from the perspective of value creation, ChemChina’s three cross-border mergers and acquisitions have all been successful. Certain synergies between the company and ChemChina are coming into play. From the perspective of improving the overall global market competitiveness of China's chemical industry, China's chemical industry still needs to continue to work hard, the main aspect of which is the construction of organizational capabilities.
In December 2006, ChemChina formally signed a cooperation agreement with Atos, the Beijing Olympics information technology service provider, to fully launch the information planning and construction project managed by the group. ChemChina has organized a project team of more than 200 people (including more than 50 foreigners), which on the one hand carries out the overall planning and design of information management, and on the other hand carries out the project construction and implementation of multiple pilot enterprises. In today's era of globalization and informatization, the construction of enterprise organizational capabilities requires not only continuous investment in the fields of production, marketing and management, but also heavy investment in the field of informatization, with informatization as the center to comprehensively enhance the overall organizational capabilities of the enterprise. This will definitely be a management innovation of great value, which can give full play to the synergy of cross-border mergers and acquisitions and lay the foundation for China Chemical Industry to form a strong competitiveness in the global market.