Why does "M&A Master" Zoomlion join hands with M-TEC?

"Zoomlion considers three main aspects in overseas M&A: first, where the enterprise value lies; second, whether the acquisition price is fair; third, the integration of the enterprise after the acquisition and the generation of synergies." On December 25, He Wenjin, Vice President of Zoomlion, made these remarks at the press conference for the acquisition of Germany's M-TEC, highlighting the three basic principles that Zoomlion follows when selecting overseas M&A targets.

Experts believe that Chinese enterprises often fall into three "invisible traps" during overseas M&A: the "nouveau riche" style of blind expansion, emotional impulses under a "bargain-hunting" mentality, and the difficulty of cultural integration after the acquisition.

How to overcome these traps? Zoomlion's experience is worth learning from.

Zoomlion: Acquiring M-TEC to enhance global competitiveness

Data from the International M&A Alliance shows that the failure rate of Chinese enterprises' overseas M&A cases is as high as 70%. Zhang Wenkui, Deputy Director of the Enterprise Research Institute of the Development Research Center of the State Council, believes that in the process of going global, Chinese enterprises' "nouveau riche" style of simply relying on scale expansion, land enclosure, and resource enclosure is a major cause of failure. "We should integrate global resources to make up for our shortcomings and form synergies to improve our global competitiveness." In other words, to control M&A risks, one must clearly know where the core value of the acquired enterprise lies.

In He Wenjin's view, when Zoomlion selects an M&A target, it first looks at where the competitive value of the enterprise lies and whether it can help Zoomlion enhance its market competitiveness.

M-TEC is the only company in the world that simultaneously develops and produces both dry mortar plant equipment and dry mortar construction equipment. Since entering the dry mortar equipment field in 2007, Zoomlion has been committed to developing systematic solutions, providing complete sets of equipment for the entire process from production and logistics to construction, and achieving innovative user experiences that fit the market. The combination of the two parties will help Zoomlion enhance its product and technological competitiveness as quickly as possible. In particular, the complementarity of sales channels will help Zoomlion expand its dry mortar equipment business globally and become the world's number one brand in dry mortar equipment.

Zoomlion: Beware of "bargain-hunting" mentality in overseas M&A

Regarding the acquisition price, He Wenjin believes that a company's valuation should depend on its position in the industry and its technological level. "In the process of overseas M&A, Chinese companies should not harbor a 'bargain-hunting' mentality; in fact, there are no bargains to be picked."

He Wenjin revealed that during the acquisition of M-TEC, Zoomlion conducted long-term negotiations. "Sometimes negotiations went until four or five in the morning, and then continued at eight the same day. This lasted for several days, and finally we obtained a relatively fair price."

The view of Fang Fang, CEO of JPMorgan China, is quite representative. Fang Fang believes that for an enterprise to succeed in overseas M&A, it must not harbor a bottom-fishing mentality but should have clear strategic thinking. Otherwise, not only will it fail to benefit from overseas M&A, but it may also fall into a trap.

The acquisition of M-TEC is another practice under Zoomlion's overseas strategy of "Fission + Fusion = Globalization": achieving fission-style professional development through the divisional system; and achieving fusion-style development through extensional expansion such as mergers and acquisitions.

Chen Xiaofei, Vice President of Zoomlion and General Manager of the Concrete Machinery Company, stated that this acquisition is not a whim but based on estimates and judgments of the direction of industry upgrading and transformation and future market prospects, and is in line with the company's development strategy.

Zoomlion's acquisition of M-TEC: one plus one is greater than two

The famous "Seven-Seven Law" of cross-border M&A states that 70% of acquisitions fail to achieve the expected business value, and 70% of those failures are due to cultural integration after the acquisition.

Zoomlion is truly an "M&A master" in the industry. Since 2001, Zoomlion has successively acquired the UK's Powermole, Puyuan Construction Machinery Factory, Zhongbiao Industrial, Shaanxi Xinhuanggong, and Italy's CIFA. Among them, the CIFA acquisition attracted global attention at the time, establishing Zoomlion's position as the world's largest concrete machinery manufacturer, and was later written into a Harvard Business School case study. Nine acquisitions and nine successes fully demonstrate Zoomlion's strong cultural integration capability.

What is particularly valuable is that, based on its own thinking and practice on the road of M&A, Zoomlion has also summarized five basic principles for Chinese enterprises' cross-border M&A: inclusiveness, sharing, responsibility, rules, and dancing together.

Regarding this acquisition, He Wenjin stated that the two parties have similar corporate cultures and a common development vision, and under the protection of the five basic principles of cross-border M&A, they will surely achieve a synergy effect of one plus one greater than two.

Chen Xiaofei's statement was even more confident: "As for profit expectations, both parties have clear expectations in the business plan and plan to quickly achieve profitability and recover the investment. If the national economic situation develops well, it may be even faster."

A Citigroup research report also supports the above expectations. Citigroup stated that Zoomlion's dry mortar equipment business will grow by triple digits in the next two years and is expected to contribute about 4% of the company's total profit by 2015. Citigroup believes that Zoomlion will leverage its leading position in concrete machinery to promote the dry mortar machinery business, which can contribute 7 billion yuan to the company in the long run.