Wednesday, July 10, 2013

China Advances in Germany: Mittelstand Part Two

There was a lot of interest in my post last year on Chinese acquisition and investment  in German Mittelstand companies. That earlier blog tracked 2009 to 2010 activity. Uwe Karbent of Brentwood-International has sent me additional Chinese M&A figures for Mittelstand companies, covering 2011 and 2012. These were gathered from Die Welt and Ernst&Young .

Medlon (electronics), Essen
Sellner (automotive), Heilbronn
EMAG (machinery), Salach
KSM (automotive), Hildesheim
Format Tresorbau (industrial), Hessich Lichtenau
Gustrower Warmepumpen (machinery), Gustrow
Preh (automotive), Bad Neustadt
CEC Crane (engineering consulting), Freystadt
Rohde & Schwarz (mobile/radio), Munich
Saar Gumml (automotive), Waddern/Buschfeld

Sunways (solar), Arnstadt
Drossbach (machinery), Rain am Lach
Taltored Blanks (automotive), Duisburg
Schwing (machinery), Herne
Saunalux (industrial). Grebenhain
Kiekert (automatic)/ Helingenhaus
Kion (automotive), Wiesbaden
Putzmeister (machinery), Alchtal

As a businessman in China, I know anecdotally that 1,000  of China's 5,000 PE firms are searching Germany for more acquisitions. What they will come up with in 2013 and 2014 is any one's guess.
The German Mittelstand companies are fair pickings for Chinese technology enrichment in autos and industrial machine manufacture.

Why are the Mittelstand families selling? These companies are privately owned, while still contributing 70% to German GDP. Their owners are aging and their children are wealthy enough to choose their own independent road of new enterprise, endeavor or pure leisure...away from the  dense multi-generational bonds of family devotion to a specialized manufacture.

Every wealthy family business faces this prospect as their children seek fresh fields. But nowhere in the world is there so dense a cluster of family owned mid size enterprises that supply the automotive and industrial machinery industries, as their are in Germany. These are key sectors for China.

There is no entrepreneurial excitement of growth for these Mittelstand companies. One part of the EU is in recession and the better part is on the precipice of recession. What is the future of these wealthy family businesses, when the SDP and Green Party are calling for higher corporate and personal tax rates? Merkel and her coalition will not be around forever. Why wait for the inevitable tax pressure, while China is heavily investing in indigenous automotive and industrial machinery? In time the selling price will decline.

While Germany has restrictions on foreign investment in the automotive sector, this does not cover the multitudinous German private enterprises that supply this sector. Eventually, as Asians autos displace German autos, German will shut the door of Mittelstand sales to China. With no other buyers in the world, it will be too late for a private German family to cash in.

Milton Kotler