It might seem a long way from Beijing’s Great Hall of the People to the factories of Europe, but when it set out its five year plan in 2011, the Communist Party vowed to improve China’s manufacturing and services industries, it sealed the fate of a number of Europe’s family businesses.
According to the Heritage Foundation, a think tank, China invested $130bn in Europe in 2013, up from $17bn in 2005. EY, a businesses services group, says that in 2013 there were 313 projects in Europe from companies based in the BRICs (Brazli, Russia, India and China), an increase of 28% from 2012. China accounted for 153 of these.
There are good reasons that forward-looking European families might welcome Chinese input.
Olaf Ploetner, dean of executive education at Berlin’s ESMT business school, says: “In general, Chinese owners do not interfere as much as owners from other countries might – for example if you have an American owner they will interfere more than a Chinese one.” He adds that the Chinese outlook tends to be long-termist, which matches those of families.
He adds: “Usually they go in and are interested in learning about the technology, if it is a technology company, but also the management systems, for example human resources.” Chinese firms are looking to learn, and to take best practice home, so they don’t start sacking people.
And don’t forget that many Chinese companies are often privately-owned, so there should be a meeting of minds between the founders and the new shareholders. However, it doesn’t always go smoothly, Here are five examples where family firms sold a stake or more to emerging market firms.
The road to Chinese involvement at Peugeot Citroen began in 2002 when patriarch Pierre Peugeot died, and the family disagreed about the business’s direction. Fast forward 10 years to 2012 and the fragmenting family oversaw a business that lost €5bn.
Eventually the firm was rescued, and the the French auto-maker became known as the Dongfeng Peugeot-Citroën Automobile Limited early in 2014 when state-owned Dongfeng Motor took a 14% stake in the business for €800m. It is now an equal partner with the founding Peugeot family and the French government, which injected the same amount of cash.
The deal gives Dongfeng access to Peugeot’s superior technology, while the French firm gets better access to Asian markets. The family get to keep their 200-year business.
But at what cost? Family head Thierry Peugeot resigned as deputy chairman in protest at a deal that is said to have been driven by his cousin Robert. His sister Marie-Helene Roncoroni took his place.
Founded by brothers Alessandro and Norberto Ferretti in 1968, the yacht-maker remained family-controlled despite the death of Alessandro in 1995, a floatation, a buy-back, an abandoned second listing, joint ventures, acquisitions, sales, private equity ownership, and emergency debt restructuring after the financial crisis of 2008.
Following this, Norberto and the management owned 38% of the business, but (extraordinarily) had 100% of the voting rights. In 2012, however, the business was sold.
State-owned Weichai Group, a manufacturer of diesel engines and industrial machinery which also sponsors the Ferrari F1 team, bought 75% of the business, with the rest going to creditors Royal Bank of Scotland and private equity firm Strategic Value Partners. Ferretti recently announced a new “entry-level” yacht aimed at emerging market buyers.
A German maker of top-end pumps – they were used to pump water into the Fukushima nuclear plant – Putzmeister had two problems. One, the market for its products fell away, and two, there was no heir to take over from patriarch. Whether this was because of disinterest of a perceived lack of talent isn’t clear.
These factors combined to make a sale necessary, and in 2012 90% of the firm was sold to Sani, a privately-held Chinese maker of heavy machinery and 10% to a private equity firm The staff have been happy with the deal, according to Olaf Ploetner, because there were few lay-offs. The firm insists that nothing has changed. “We still eat with knives and forks,” the head of human resources said in a newspaper interview.
Espirito Santo Saude
When the Espirito Santo group – owned by the Espirito Santo family – collapsed this summer following the discovery of accounting black holes in its bank, the race was on to buy the group’s stronger operations.
In October, Fosun, the vast conglomerate founded and run by one of China’s best known business men Guo Guangchang, agreed to buy 51% of the Espirito Santo healthcare business. Fosun also said it was looking at Banco Novo, the good bank that was spun off the failed group. Chinese buyers are increasingly interested in Portugal, largely because it offers an entry to Portuguese-speaking Brazil.
Bang & Olufsen
The Danish high-end stereo equipment maker is proof that getting into bed with a Chinese investor is no guarantee of success. In 2012 the firm, which until that year still had a member of the one of the founding families, the Olufsens, as chairman of the board, sold about 8% of the business to a privately-held Chinese company called Sparkle Roll and a private equity firm to expand in China.
Bang & Olufsen were suffering badly from a drop in European sales due to the downturn there, and said they wanted to increase the percentage of their revenues that came from China from 3% to between 20 and 30%.
Sparkle Roll had previously worked to boost Burberry’s profile in the country, and said it would open more than 50 Bang & Olufsen stores there. So far, however, the magic has not been repeated and results in the first quarter of 2014 disappointed: global revenue grew just 1% year-on-year.