by Zhao Jing
CHICAGO, Aug. 12 (Xinhua) -- Impressed with Chinese automaker Geely's well-planned acquisition of Volvo, U.S. merger and acquisition experts said on Thursday that this is a very good acquisition for Geely and will provides it with long term strategic benefits.
Bob Billow is Managing Director and Principal at Billow Butler & Company, a Chicago-based investment bank specializing in mergers, acquisitions, divestitures, private market financings, and valuations for middle-market companies.
He told Xinhua in an exclusive interview: "I am very impressed by it and I think it is a very good acquisition. Geely understands the imperative and strategy of going global and how to integrate this expansion with its domestic plans. They saw the great opportunity to acquire a very vulnerable brand name with a strong reputation and innovation. This well-planned acquisition will provide long term strategic benefits for Geely."
Billow enjoys over 30 years of transaction experience and has participated in about 250 transactions in a wide variety of industries. When talking about the challenges for Geely after this acquisition, the M&A expert pointed out, "One challenge to recognize is to transfer Volvo into a money maker and I think they have plans to do so. They have raised substantial funds to be able to make great investment into operations and support R&D."
According to Billow, in any transactions there is always a need to integrate different management teams. "Another challenge for Geely is to integrate not only the two companies, but also the two different cultures and countries," he added.
"However, I think they have done this very well. They have plans for a very good integration by acknowledging different structures and different corporate entities. It recognizes the importance to the Swedes of some autonomy by having a separate board, strategic plan and management team," Billow noted.
Meanwhile, this acquisition also brings many opportunities for Geely. Billow said: "Geely surely recognizes the value of the technology in safety, designs developed over the last few years and innovativeness at Volvo. It can incorporate this into Geely cars to bring problems and complaints to a much lower level in the Geely line."
Additionally, Billow noted, "Geely will now have a base for launching into Europe and the U.S., though its distribution network will need to become better established and grow. It needs to collaborate with Volvo on the expansion and development of its distribution network."
For Geely to make this acquisition most successful, the seasoned expert advised that it should certainly know the customer base it is targeting well. "They'll have to keep their production costs right for their market to make money and incorporate engineering and technology innovation from Volvo. While Geely has a great strategy, it should be nimble and willing to adjust to facts and circumstances as they play out."
Commenting on the trend of Chinese companies going abroad, Billow believes this is a natural phenomenon that should be expected. "This is becoming more and more a case of globalization. As China's GDP grows, so will its interests in global expansion. This will spawn many more cross-border Chinese acquisitions. In addition, I think there is broad Chinese support for this from both financial institutions as well as Chinese government entities. "
He suggested that they need to adapt to local approaches and conditions for the geographies and jurisdictions and cultures in which target companies are acquired. "It is very important to understand your strategy and test it to make sure it synchronizes well with local and domestic plans," he remarked.
In terms of the target industries, the expert said: "Many Chinese companies are state owned enterprises looking to acquire energy and mineral businesses. But there are many IP assets, management and operational skills, distribution channels and brands that will have immense global value. Now this is a great time to acquire those assets at a reasonable price before M&A prices strongly move up. And many of these assets can be unlocked through the acquisition of middle market, privately held overseas companies."
Due to regulatory hurdles and nationalistic barriers etc., the seasoned expert advised that Chinese companies should focus on middle market business acquisitions where the risks of error are slight, the barriers are much more local and not national in scope, and there is likely to be little if any opposition, and importantly the price to value ratio might be much more reasonable than you would find in regard to a large cap acquisition.
He further noted: "It is important for a potential suitor to have good advice, and that would involve retaining the best attorneys, financial advisors and investment bankers to be able to consult with and help them fulfill their strategic mandate and long term profit objectives. It is important to have people with good local understanding of culture, cross-board expertise and grounding in local laws, practices, and jurisdiction."
Darrel Butler, managing director and principle at Billow Butler & Company, also commented on the Geely's acquisition. He told Xinhua: "Overall I think this is a good acquisition for Geely. I think it continues the trend that Chinese companies seeking to acquire businesses with global brands, with forward thinking marketing and image, and certainly the technology."
He believes the trend is very important from a broader M&A perspective. "We are starting to see that Chinese management and the Chinese managerial culture is changing to be more open minded in acquiring assets and taking on some risks outside their boarders. This will open up opportunities from technology and brand perspective, and will certainly help the trends of the merger and acquisition globally."