MLS drawn to Osram as China M&A burns bright

Chinese firms have bought overseas in record numbers this year. Lighting group MLS is the latest, heading a consortium that wants to buy part of Germany's Osram for $440 million.

A consortium led by Zhongshan-based lighting company MLS has agreed to pay more than €400 million ($439.7 million) to buy a subsidiary of Germany’s Osram — adding to the record-breaking flow of Chinese capital into the European country.

MLS has joined forces with venture capital firm IDG Capital Partners and financial-backer Yiwu State-Owned Assets Operation Centre to take over Osram’s lamp-making business, Ledvance. It is the latest offshore Chinese M&A deal in a year that has already broken all records.

Chinese acquisitions in Germany, in particular, have dwarfed previous years. According to data provider Dealogic, Chinese companies have announced just over $11 billion of acquisitions into the country so far this year. Between 2013 and 2015, in contrast, they closed deals worth just $4.7 billion.

The equity-funded, all-cash deal turns MLS from a “domestic champion” into a company with a global presence in one fell swoop, according to a person familiar with the transaction.

But the company has a long wait before the deal closes. Given the need to carve out the business from Osram, as well as the need to get approvals from regulators in both countries, the transaction is not expected to close until some time next year.

It is the first time MLS has looked outside of greater China for an acquisition. The company’s only previous deal was the acquisition of an 80% stake in a small Hong Kong company. 

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IDS Capital Partners has been a lot busier, having worked on around 15 M&A deals with other Chinese companies hungry for overseas assets, Dealogic data shows.

That alone, however, does not tell the whole story. IDS itself — a foreign-founded venture capital fund that has operated in China for 23 years — says on its website that it has more than 450 companies in its portfolio and has already achieved 100 successful exits.

Yiwu, the other party in the consortium, is more mysterious. The company has no previous M&A deal in Dealogic records, and does not appear to have a website. But the company has previously sold debt in the local market, achieving a rating of AA+ from China Chengxin International Credit Rating Co.

The exact agreement between the parties in the consortium, and how the financing was split between them, was not clear at the time of publication. Someone familiar with the deal, talking to FinanceAsia on background, refused to be drawn on this point.

But the deal does underscore a wider trend: venture capital funds and other financial investors teaming up with Chinese companies to tap overseas markets.

MLS posted a net profit of Rmb50 million ($7.55 million) in the first quarter of 2016, down 45.32% from the same period last year. But the company’s net cash flow jumped significantly: it had net cash flow from operating activities of Rmb49.48 million, compared with a negative net cash flow of Rmb79.3 million during the same period last year.

Osram released its unaudited quarterly results on Wednesday, showing that its lamps business generated revenue of €447 million in the most recent quarter.

The lamp division’s adjusted earnings before debt, interest, taxes and amortisation was €25 million in the period, although its reported Ebitda was €6 million.

Credit Suisse was the financial advisor to MLS. UBS advised Osram.

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