Cars and Planes: China M&A Picking Up

Cirrus Demo Aircraft

Image by brianc via Flickr

With so much cash on Chinese company balance sheets, and the technology gaps that remain in many industries, it’s only natural that Chinese companies would begin to shop overseas to acquire needed technology and know-how. Two recent deals — one in auto parts, the other in planes — indicate where this trend is headed.

In April, AAC Capital Partners, a Northern European mid-market buyout firm, announced that it had agreed to sell Inalfa Roof Systems Group B.V. (Inalfa), one of the world’s largest suppliers of vehicle roof systems, to Beijing Hainachuan Automotive Parts Co., Ltd. (BHAP) the parts subsidiary of Beijing Automotive Industry Corporation (BAIC). The Chinese press said that the price tag was 190 million Euros.

Inalfa designs, develops and manufactures sunroofs and open-roof systems for the leading car manufacturers around the globe, including BMW Group, Daimler, Chrysler Group, Ford Motor Company, General Motors, Volkswagen, Audi, Volvo, Citroën, Chery, Geely, Hyundai Kia, Land Rover, Rolls Royce, Renault, Nissan and many others. Inalfa has significant engineering capabilities and a global footprint, with facilities in Europe, the United States, South Korea, China, Brazil, Mexico and Japan.

Beijing based BHAP has 26 subsidiaries, including 10 Sino-foreign joint ventures, that manufacture interior/exterior decoration, electronic modules, seat systems, and heat exchange and chassis systems. As part of BHAP’s international strategy, the acquisition of Inalfa will diversify BHAP’s product portfolio, strengthen its R&D and marketing capabilities as well as its competitiveness. BAIC, BHAP’s parent company, manufactures Mercedes and Hyundai passenger cars in Beijing in joint ventures with Daimler and Hyundai. (Did you ever wonder why all of the taxicabs in Beijing are Hyundai’s?) BHAP plans to go public in 2013.

In late June, China Aviation Industry General Aircraft (CAIGA), the largest general aircraft manufacturer in China, announced that it had completed its acquisition of Duluth, Minnesota-based Cirrus Aircraft for $210 million. Cirrus has delivered nearly 5,000 piston airplanes over the last decade, and now has a jet under development. The sellers included Arcapital, a private equity firm, and Alan Klapmeier, the company’s co-founder.

The deal was first announced in February, but U.S. concerns about technology transfer stretched out the consummation of the agreement. Last month, CAIGA officials signed a pledge drafted by the city of Duluth that ensures that the Cirrus production plant will stay in the U.S. and won’t be moved to China. Cirrus said that CAIGA will bring the resources to expedite development of the single-engine Vision jet, which could now achieve FAA certification and initial deliveries in mid-2014.

This is just the latest in a series of announcements by CAIGA of deals to buy American companies. Last year, CAIGA successfully bid on the assets of bankrupt Epic Aviation, and it has also has entered into deals to buy Teledyne Continental Motors and Emivest Aerospace, the maker of the SJ30 business jet.

As deals go, BHAP’s acquisition of Inalfa and CAIGA’s acquisition of Cirrus are not large. However, they are significant because they underscore the transfer of technology to China that is now taking place in many industries through cross border M&A. In the past, Chinese companies had to be content to acquire technology through license agreements or joint ventures with their foreign partners. In most cases, both types of arrangements limited the use of the technology by the Chinese company to China. However, when a Chinese company acquires a company, it owns the underlying technology and can use it anywhere in the world. The combination of the world’s largest market with world class technology will soon make many Chinese companies true global leaders.

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