Enlarge image
Photo: MA LUYAO / IMAGINECHINA / LAIF
Medium-sized companies and hidden champions from Germany are popular takeover targets for Chinese investors - even if the buying frenzy of 2016 to 2018 has subsided again.
But while the media debate mostly revolves around the takeover of critical technologies, there has so far been little insight into how the performance of the acquired companies is developing.
The doctoral student Christina Brunner from WHU - Otto Beisheim School of Management has now investigated this question.
In an empirical longitudinal study, it collected extensive data on 63 takeovers of German companies by Chinese investors from 2008 to 2016. It also compared all takeover candidates with another company with similar characteristics that was not taken over.
Know-how is withdrawn
A takeover by Chinese buyers,
The study shows that it does more harm than good to German companies.
In almost all cases, the profitability was significantly lower than before the takeover, also in comparison to the comparable companies that were not acquired.
In real terms, the annual profitability of Chinese-owned property, as measured by return on total capital, has fallen by 2 percentage points.
This decline can still be observed four years after the takeover.
Some of the reasons for the crash: Chinese investors are withdrawing superior technology or expertise without bringing in their own knowledge.
They often come from a foreign industry and have little experience in the target company's business area.
In addition, there is a lack of experience with German business practices and framework conditions as well as a different management style.
"The results show," writes Christina Brunner, "that the dream of increased productivity and thus greater success for German companies that are taken over by Chinese investors will not necessarily come true."
Source:
Christina Brunner: "Overseas acquisitions by emerging-market firms in developed markets and target firm performance - an empirical analysis of Chinese acquisitions in Germany", WHU - Otto Beisheim School of Management, unpublished work, 2020
This article appeared in the August 2021 issue of Harvard Business Manager.
