Chinese investors are increasingly buying distressed companies in the US across a broad range of industries, including solar, wind, autos and aviation, according to merger and acquisition specialists.
Many companies in these sectors are still highly leveraged and desperate for money, said lawyers and bankers who have advised on some of these transactions.
Distressed US energy, industrial and chemical firms are attracting the most interest from potential acquirers globally, according to a research report by US-based law firm Schulte Roth & Zabel, which specialises in distressed investing.
“We are in contact with potential Chinese buyers who are showing stronger interest in purchasing distressed US companies,” said Michael Diz, a New York-based corporate partner with law firm Debevoise & Plimpton. Diz has advised on several sales of distressed assets to Chinese clients.
To be sure, there have been fewer distressed companies during the past few years as the US economy has improved. Business bankruptcy filings dropped by around 10% during 2012, according to Pratt’s Journal of Bankruptcy Law.
However, a number of recent M&A transactions highlight China’s continuing appetite for distressed deals.
Wanxiang Group, a Zhejiang-based auto parts maker, bought Massachusetts-based A123 Systems for $256.6 million in January, while Beijing Galloping Horse Film paid $30.2 million for Hollywood’s Digital Domain Productions last November.
“More Chinese companies now are cash rich and are very motivated to seek higher returns and to upgrade their technology,” said a Beijing-based M&A banker at Lazard. “However, they are also very selective and picky. Only big bargains can entice them into a bidding process.”
Growing political and financial support from China’s local and central government is also pushing Chinese companies to go abroad.
On July 5, China’s State Council said the financial sector should support economic structural adjustment and industrial upgrades, partly by helping Chinese companies go overseas. Earlier in January, the Ministry of Industry and the National Development and Reform Commission, along with other ministries, also released guidelines to promote M&A deals among some important industries such as auto, steel, cement, shipbuilding and healthcare.
“Chinese buyers have learnt from their experiences in previous deals and know how to play the game now,” said My Chi To, also a partner with Debevoise & Plimpton. “The trend of going overseas will continue.”