On March 24, 2016, Zhejiang Wanfeng Technology Development Co Ltd officially closed the 302 million U.S. dollars acquisition of The Paslin Company, a U.S. Detroit robotics firm in the automotive sector. This transaction took five months to complete and was, at the time, the largest cross-border acquisition in the robotics field for China. In 2013, Wanfeng Tech’s parent company Wanfeng Group, which is China’s largest aluminum alloy wheel producer, had acquired the world’s largest magnesium alloy components supplier in Canada, Meridian Co.
In reality, Wanfeng Tech was late to the game. Wanfeng Technology, a robotics manufacturer and systems integrator based in Xinchang, Zhejiang Province, found out in October 2015 that Paslin was up for sale. Paslin Co. is a private company headquartered in Warren, Michigan that makes robotic assembly lines for automotive OEMs and tier-one suppliers. However, there was one problem because many U.S. companies had already submitted their bids to acquire Paslin Co. With a late start, how did this Chinese company beat the odds and come out on top? “It was pure determination, will and cultural respect, as well as being fully prepared and paying attention to the little details”, according to Bill Yu, Managing Director of Crestridge Consulting and Helen Koo, China CEO for the U.S. based Crestridge Consulting, a finance and strategic advisory firm. On June 2, 2016, Yu and Koo spoke to CBU/CAR in an exclusive interview in Beijing about the strategies behind this successful acquisition and what Chinese companies looking to acquire companies abroad can learn from it.
(Headquartered in Los Angeles, Crestridge Consulting, Inc., under the leadership of President Alex Fan, focuses on servicing the North America mergers and acquisitions needs of China based state-owned enterprises, privately held and listed companies, and government units. Crestridge represented BeijingWest Industries in acquiring Delphi’s brake and suspension systems for 90 million U.S. dollars. In 2010, Crestridge represented Beijing based Pacific Century Motors to acquire Nexteer Automotive from General Motors for 480 million U.S. dollars. At that time, this transaction was China’s largest cross- border auto parts deal ever.)
Determination and Will
According to Yu, Wanfeng Tech has a unique corporate culture and a competent team that has the determination and will to overcome all obstacles and move forward. When Wanfeng Tech first heard of the acquisition target, most of the twenty plus other competitors had already submitted bids and Wanfeng Tech had yet to even begin a due diligence study. Because many strategic and financial buyers expressed a strong interest in Paslin, “Wanfeng Tech was definitely the underdog and was basically afforded a chance to try,” said Yu. “But it got the attention of Paslin, which observed closely the attitude of the company and how they were engaged in the due diligence study.” Wanfeng Tech’s ability to pay attention to details during factory visits, efforts to talk to Paslin’s management team, and the speed and quality of their due diligence study impressed Paslin, which increasingly felt that Wanfeng Tech would be the right acquirer.
One of the advantages that Wanfeng Tech did have, according to Yu, was that cross-border acquisition was already a long term strategy for the company, so they were prepared even though they were late to the game. “Wanfeng Tech was ready to fight. Its team was highly cohesive, went through various processes efficiently, including committing to move forward and obtaining approvals, made many decisions quickly and worked day and night for one goal,” said Yu.
During the final stage, there was a tight schedule to submit the final bid. In order to meet the deadline, Crestridge again flew to Detroit on December 31, 2015. All the due diligence team members were gathered on January 1, 2016 including lawyers, accountants, environmental experts, human resources and industry consultants. They held summary meetings every day and completed the final report in a week. Wanfeng’s determination came from its detailed analysis and prudent judgment, which demonstrated its will for consistency and project execution.
Wanfeng Tech Chairman Tommy Wu, according to Yu, has good management skills and a western educational background. He was very frank at the beginning with Paslin on what Wanfeng Tech was, what they were going to do, what kind of relationship they would have with Paslin after the acquisition, showing that everything was laid out on the table. That openness moved Paslin management who were excited to work with Wanfeng Tech to open up markets both in China and outside the U.S. Since the closing of the deal, the management of Paslin and Wanfeng have worked well as a team.
One of the toughest hurdles to overcome in a cross-border acquisition, according to Koo, is cultural integration, which must be done in advance of the acquisition, not after the fact. “You must have the mentality for cultural integration when you establish your international strategy,” said Koo. “Even if you don’t have any acquisitions plans, you still need to be prepared ahead of time. You have to make the acquisition target feel that their culture is fully respected at every level.” In many acquisitions, the seller often pays attention to many details during the negotiation process to see if they are respected.
Bill Yu (first right) and attorney team
Yu stressed that Wanfeng Tech strictly followed the rules of the game and was very respectful of the cultural habits of Paslin, while, at the same time, attaching great importance to talents. With the help of Crestridge and a HR consultant, Wanfeng Tech evaluated every single member of Paslin’s senior executive team and met each of them face to face to get to know them on a personal basis, which received high praise from Paslin.
By the final round of negotiations, only one other competitor was left, a North America company which offered more money to acquire Paslin. But because Wanfeng Tech had impressed the management of Paslin with their meticulousness, they got the deal,” said Yu. “Paslin management thought the company had a more promising future with Wanfeng Tech.”
Yu stressed that one pitfall Chinese companies often experience is the tendency to apply the investors’ mindset and style on the seller while not being sensitive enough to cultural intricacies. This could create problems during and after the acquisition. Chinese enterprises would be better off not only maintaining their own position, but also being flexible to understand and respect the acquired firms. “This has improved tremendously as more Chinese companies have looked to overseas acquisitions, but Chinese companies must be open about cultural differences and seek common ground on major issues while reserving differences on minor ones,” said Yu.
Looking down the road, Koo predicted that industry trends will force Chinese suppliers to look for mergers and acquisitions and become more global, because Chinese suppliers still lag far behind foreign counterparts in core technologies, and the fastest way to overcome it would be through overseas acquisitions. China’s policies also support that strategy, and the government has earmarked close to ¥10 billion in dedicated funding for the three years after 2014 for this purpose.
“The future role of suppliers will be how they can support the globalization of OEMs and provide complete solutions, and Chinese suppliers must go in this direction,” said Koo.
One specific move that Wanfeng Tech did well, according to Yu, was that after the deal closed, it immediately conducted “town hall” meetings at four Paslin plants together with the Paslin management team. The purpose was to let all the Paslin employees, those that were not involved in the negotiations, to get to know Wanfeng Tech and the management team. This was part of the “breaking the ice” process.
Commenting on the operations of other Chinese companies that already have a big presence in the U.S. such as Wanxiang and Fuyao Glass, Koo said that both companies have core technology experts and talent that know cross-border acquisitions and understand the rules of the game. Fuyao, for example, has 70 percent of the domestic automotive glass market, and therefore, global expansion is a major strategy for the company. Fuyao’s acquisition of a subsidiary of rival PPG, according to Koo, was a prime example of how a company can turn a disadvantage toward its favor. Fuyao’s acquaintance with PPG was a court fight over anti-dumping. While Fuyao prepared for the legal fight, its management team visited PPG proactively to communicate and understand each other, which eventually transitioned into an acquisition and a win-win for both sides.