BEIJING — October 11, 2018 — Chinese outbound M&A deal activity represented more than 40 percent of deals in Asia-Pacific from 2015-2017, but saw this share drop dramatically in the first half of 2018. Despite this dip, the latest stage of M&A is helping Chinese companies gain market share in utilities, construction and Internet-based businesses in countries such as Brazil.

The number of Chinese outbound deals for 100 percent ownership from 2016 to 2017 more than doubled vs. 2013 to 2015, and the number of deals for 50 percent to 100 percent ownership jumped more than threefold.

According to Bain & Company’s second China outbound M&A report, More Rigor Means Better Results in China’s Global Pursuit, a host of factors contributed to the decline in deal activity. Currency depreciation took a toll, as did fears of the effects of the US–China trade wars on both domestic company profits and US opportunities.  Deals were hurt by restrictions on investments in the US, Germany, Australia and other markets, as well as by the Chinese government, who are more carefully and closely monitoring outbound investments.

Yet, the research suggests there are still ample opportunities for more overseas acquisitions. In 2017, China spent only 0.6 percent of its GDP on outbound M&A – as a percentage of GDP, China usually spends half of what Japan usually spends on outbound M&A.

Another significant evolution: The number of private enterprises acquiring overseas is growing much faster than acquisitions made by state-owned enterprises. As a result, Bain & Company anticipates an increase in deals aimed at capturing new capabilities required to grow businesses at home and for accessing global markets.

“Chinese companies looking to acquire beyond China’s borders focus on achieving dual goals:  winning at home and exporting abroad, which enables them to strengthen their domestic competitive stance while simultaneously positioning for global expansion, especially in other developing markets,” said Phil Leung, who leads Bain & Company’s Asia-Pacific Mergers & Acquisitions practice. “This latest stage of M&A is helping Chinese companies gain market share in utilities, construction and Internet-based businesses in countries such as Brazil, India and Indonesia, though Europe and North America remain the largest capital destinations.”

The shift to using acquisitions to win both at home and overseas brings with it new and more complicated rules for success.  Based on its work with leading Chinese acquirers, Bain & Company has identified a winning formula to help companies avoid costly mistakes and apply more rigor to their acquisitions:

1. Aim for frequent and material M&A. One fundamental has not changed. M&A creates the most value for any company anywhere in the world when it is frequent and material over time. This was a finding from Bain’s original extensive research on M&A and it has been reconfirmed across industries and geographies in numerous follow-up studies. Chinese acquirers are getting the message. Bain & Company analyzed the performance of more than 700 Chinese companies that made acquisitions from 2013 to 2017. The overall average total shareholder return (TSR), defined as stock price changes assuming reinvestment was 11.6 percent.  Companies with more frequent and large deals—those we refer to as “mountain climbers”—did much better, however, with an average TSR of 18.6 percent.
2. Develop a repeatable model for outbound M&A with disciplined capabilities. Shandong Ruyi sets a standard for repeatable outbound M&A, as the company started life as a regional woolen mill, textile and apparel manufacturer. Since 2010, and with the help of a dedicated team, Ruyi acquired more than 10 companies, focusing on integration along the textile and apparel value chain. A hallmark of its repeatable approach is to keep an acquired company’s operating model largely unchanged and to retain key employees. The formula works well: The strategy of engaging in frequent acquisitions has helped the company double its stock price over the past five years.
3. Evolve M&A capabilities to deal with a complex environment when entering global markets. Leaders are becoming more adept at evolving their capabilities for the more complex requirements of different types of deals. Generally speaking, there are four variations of outbound deals: those aimed at acquiring natural resources; those intended to import technology and brands; those that will give an acquirer access to developing markets; and those that will help it explore developed markets. The capabilities required for each are vastly different, and companies need to evolve their capabilities to address those varying needs.

“China’s outbound boom will only continue as companies look to capture new capabilities that strengthen their domestic position, while also growing overseas for a leadership position in industries in which they can gain a competitive edge,” said Hao Zhou, partner with Bain & Company and head of Greater China M&A.  “But as they build their repeatable models, they will also need to keep one eye on the future. In China, as elsewhere, winning outbound acquirers will be those that make the necessary adjustments to evolve their M&A strategy along with a global market that never stops changing.”

Posted October 11, 2018

Source: Bain & Co.

HOUSTON — October 10, 2018 — Shell Chemical Appalachia LLC (Shell) today announced the successful installation of its quench tower — the largest piece of equipment at its Pennsylvania Petrochemicals Complex, currently under construction. The heavy lift of the quench tower, undertaken October 7, marked an important milestone in the project.

Since the start of main construction in November 2017, Shell has also safely erected two of three reactors associated with the planned polyethylene units and laid around 15 miles of underground pipe for the cooling, firewater and drainage systems.

The project is bringing economic growth and jobs to the region, with some 3,000 workers on site today. That number will likely increase to 6,000 by the end of 2019 through its construction phase. Shell expects around 600 onsite jobs when the complex is completed.

“Eleven months into main construction, I’m delighted with the progress we’re making in Pennsylvania,” said Graham van’t Hoff, executive vice president for Shell’s global chemicals business. “It’s great to see our world-class complex taking shape. The project is providing more economic opportunities in Pennsylvania and the region.”

At approximately 2,000 metrics ton and 87 meters tall, the quench tower spent nearly three and a half weeks being towed up the Mississippi and Ohio rivers. Upon arrival in Pennsylvania, it was unloaded onto a dock and transported down a newly-created road — both specially-designed to handle the large quench tower.

In May 2018, Shell introduced its Shell Polymers line of business to customers.

Posted October 10, 2018

Source: Shell

DALLAS — October 9, 2018 — Highlander Partners L.P., a leading middle market private investment firm based in Dallas, today announced the acquisition of SFERRA Fine Linens LLC.  Founded in Italy in 1891, and headquartered today in Edison, N.J., SFERRA is a luxury linens and home lifestyle company, with a consumer brand known for design, textile innovation, trusted quality, and craftsmanship.

SFERRA’s product portfolio today includes more than 10 different categories, including bed, bath, table, and decorative accessories. The SFERRA brand is known for its fine Italian craftmanship and for sourcing premium natural fibers from the foremost global resources to spin and weave its luxury goods. The company’s multi-channel distribution platform consists of over 800 home specialty boutiques, major luxury department stores, SFERRA.com, and select hospitality properties.

Mark Blanchat, a partner at Highlander has been named as the newly-appointed chairman of SFERRA; and Michelle Klein will continue in her role as CEO and president of the company. Of the acquisition, Highlander’s Blanchat commented: “This acquisition reiterates Highlander’s focus on investing in high-quality, branded consumer products companies and represents an opportunity for us to acquire an established luxury brand with a loyal consumer following due to its highly differentiated product offerings and superior quality. Luxury bedding has proven to be a stable segment of the market and is expected to continue growing over the foreseeable future as consumers correlate a better sleep experience to achieving improved health. There are tremendous growth opportunities for this business driven by strategic brand and product extensions designed to further increase awareness, along with continued growth in new and existing channels. We believe Michelle and her team are the ideal partners to take SFERRA to the next level.”

Jeff L. Hull, president and managing partner of Highlander, commented: “We are very excited to be partnering with SFERRA management in this transaction. All of us believe SFERRA has the potential to become the leading luxury linens provider globally, reaching into adjacent untapped home-goods categories. We are looking forward to implementing a selective “buy-and-build” investment approach and finding complementary M&A opportunities for this business in the luxury goods category.”

Michelle Klein, CEO of SFERRA, added: “We are excited about the new partnership with Highlander and will benefit from their resources and expertise in brand building. SFERRA currently has outstanding consumer awareness, and we are well positioned to continue our historical success. We’re looking forward to partnering with Highlander to help accelerate growth across the U.S. and internationally. Our team at SFERRA is eager to get started on our robust pipeline of new opportunities.”

Lazard Middle Market acted as financial advisor to SFERRA.  Regions Bank and Fifth Third provided senior financing, and Norwest Mezzanine Partners provided mezzanine debt in support of the transaction.

Posted October 10, 2018

Source: Highlander Partners