FOCUS M&A
Now is the time
M
ergers and acquisitions seem to be hot this year as the logistics market is beginning to consolidate, foreign companies continue to entrench in the China market and domestic companies begin to look outward. At a recent Global Supply Chain Council event, Chee Wee Gan, Senior Principal at A.T. Kearney, discussed what companies should look for when they begin the M&A process. Driven by the economy, Gan says that the logistics market is getting too big for many global players to ignore, but that companies need to be careful when they begin to sends out tendrils of M&A inquiry. By 2015, China’s combined international and domestic land/ air transportation network will reach a value of RMB 3 trillion. Gan says that the Chinese logistics market is now in a stage that it is ready for consolidation, as there are too many small players working in a fragmented and intensely competitive market. Essentially, Gan expects for the market to show clear consolidation and emergence of market leaders within the next three to five years. In addition to pure market drivers,
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Gan also points to government initiatives that are driving the logistics market towards consolidation. He noted that as labor, licensing, and standards laws become more stringent, weaker players will be driven from the market, creating a more level playing ground for high quality foreign and domestic players. Domestic players are being encouraged to expand and improve, and money is going into north and west infrastructure. In short, if you’re looking for a merger or acquisition, now would be the time to start observing potential candidates. However, one of the luncheon participants wanted to know exactly what it was that companies should look for when they began to consider looking
for acquisitions. While Gan pointed to some successes like TNT-Hoau, he says that a tailored approach is key. It’s important to look at all aspects of a company very carefully, especially the web of relationships that extend through
the company and in relationship surrounding other people the factory uses. Are there any clear leaders? Is the truck driver the boss’s brother? If one person goes, will the rest follow? Gan also warns of watching out for hidden costs lurking within company strategy, equipment etc. “Don’t underestimate due diligence,” he said. “It’s crucial to finding out about the little things within the company.” Another participant wanted to understand exactly how often they should be looking around for potential companies. Gan noted that the business environment in China changes so quickly, that companies could do well to re-evaluate the market every six months. While this seems like a lot, companies also seem to change on a much quicker scale in China than in other countries. It remains unusual for a bad company to change into a good company, but smaller companies often get an extra boost from good leadership and begin to expand or update their processes. The most important advice for companies looking to acquire in China is constant vigilance. “The market is still a little messy,” says Gan. “But now is definitely the time to be looking.”
SEPTEMBER/OCTOBER 2010
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