The rush of Chinese companies expanding overseas continues, with state-owned Beijing Capital Group the latest to invest abroad after it struck a NZ$950 million ($793 million) deal to acquire Transpacific Industries Group’s New Zealand business.
State-run Chinese firms have a reputation for moving slowly on acquisitions but Beijing Capital beat other bidders in an auction, surprising the market with its nimbleness.
According to one source familiar with the matter, Beijing Capital moved quickly after looking at the waste management firm in the last quarter of 2013. "SOEs now know what they want and are willing to pay when it comes to strategic investments," the source said.
The deal offers Beijing Capital, which manages major landfills in China, the chance to acquire greater expertise in dealing with hazardous waste and managing waste beyond the traditional landfill method, at a time when China is being plagued by a chronic pollution problem.
Transpacific, which is listed on the Australian Stock Exchange, hired Deutsche Bank to conduct the auction process.
China's state-owned enterprises have picked up the pace of their acquisitions since the conclusion of the Chinese political leadership's policy-setting Third Plenum late last year.
On Friday, Chinese state-backed grains giant Cofco announced it is acquiring a 51% stake in privately-held Dutch grain trader Nidera. The size of the deal was not disclosed but the enterprise value for Nidera was about $4 billion, according to a source familiar with the matter.
"China outbound has seen a strong resurgence in the last quarter of 2013," said David Brown, PwC partner and China & Hong Kong Transaction Services Leader. "This is partly due to state-owned enterprise reform. A lot of SOEs have been told to globalise and are under pressure to make offshore acquisitions," he said.
As Chinese companies - both private and state-owned - continue to flex their muscle overseas, they are increasingly coming into competition with Western private equity firms. According to a Reuters report, other bidders for Transpacific's New Zealand arm included the Nasdaq-listed Carlyle Group.
"As they move overseas, increasingly Chinese companies are competing with private equity players and in many cases, as strategic buyers, they have the ability to pay more than a financial buyer as they are able to reap synergies, such as economies of scale. Another advantage is their ability to commit capital more quickly which helps accelerate deals,” Brown added.
Beijing Capital’s acquisition in New Zealand marks its first major acquisition outside China. The group is a major player in China’s solid waste treatment industry and a key investor in the transport infrastructure around Beijing. It is also one of the largest water companies in China, with total assets that exceeded $21 billion as of December 2013.
Transpacific waste management operations in New Zealand posted revenue of about NZ$369 million and earnings of about NZ$107 million in 2013. The company has 800 vehicles, 29 refuse transfer stations and five landfills.
Beijing Capital's acquisition was struck at an earnings multiple of 8.8 times, lower than the 10 times multiple that Hong Kong-listed Cheung Kong Infrastructure Holdings paid when it acquired New Zealand waste management company EnviroWaste last year.
The sale is expected to be completed by June 2014. HSBC advised Beijing Capital Group and Cofco.