The $43 Billion Syngenta Deal: The Peak and End of China's Buying Spree
The golden age of Chinese overseas M&A began with an official signal in 2009 and ended with the 2017 turn against globalization; Syngenta was both the peak and the endpoint. Buying cheap matters less than buying right—integration is the key to success.
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The argument · tap a timestamp to hear it
The starting point of the era was an official statement
People in the industry generally believe this wave of overseas M&A began in 2009 and ended in 2017. In July 2009, the Global Think Tank Summit was held in Beijing. Li Rongrong, then director of the State-owned Assets Supervision and Administration Commission, said in his keynote speech that the economic strength of Chinese enterprises had risen significantly, but their global share was still very limited and not commensurate with China's national power. China would create a more favorable environment to actively support and encourage enterprises, especially central SOEs, to go global and engage in cross-border M&A. Wang Wei said that before this there had been private moves in response to the wind, but they were not systematic. Only after the official tone was set could everyone start doing this.
— Wang WeiFour things Lenovo and Geely had in common
Wang Wei believes these two deals are benchmarks no one can ignore. First, before the acquisitions, both companies were confined to the domestic market and lacked a prominent industry position; Geely was not even a first-tier domestic brand before acquiring Volvo. Second, the acquired businesses themselves were not favored by the market: IBM's PC business had low margins, and Volvo's passenger car unit had already been sold off by Ford. Third, at the time of the deals, neither was favored; people thought the purchase prices were high and might drag down existing businesses. Fourth, integration took three to five years; Lenovo completed its deal in 2004, but results only appeared in 2009. In the end, both became Fortune Global 500 companies.
— Wang WeiWestern buyers cut jobs first; Chinese buyers keep management
Wang Wei explains why overseas sellers welcome Chinese buyers: when Western companies acquire each other, the first thing they do is cut jobs and eliminate management, because synergies usually come from saving on salaries and costs, which can amount to hundreds of millions of dollars. The first thing Chinese companies do is discuss management retention, because they are unfamiliar with overseas markets and face many challenges. This is also the reputation Chinese buyers have earned: willing to pay, willing to invest, willing to retain management.
— Wang WeiThere are no bad deals, only bad prices
Wang Wei says there is a saying in investment circles: there are no bad deals, only bad prices. It is always about value for money; even junk can make money if it is cheap. But companies see things differently: a deal must serve a strategic purpose. First clarify the purpose, then decide the path; M&A is just a means. If the right price can exactly solve my problem, it is a good deal. He likes to compare M&A to marriage: only the two people know if they are right for each other. Outsiders may see that the education levels do not match, but what I value might be her virtue.
— Wang WeiSyngenta was once the jewel in the crown
When Wang Wei first entered the industry in 2009, he looked at the Syngenta deal, but at that time Chinese companies could not afford it, and the company was hailed as the jewel in the crown of the industry, said to be untouchable and not for sale. There were six major proprietary agrochemical companies: Syngenta, Monsanto, Dow AgroSciences, DuPont Pioneer, Bayer's agrochemical business, and BASF's agrochemical business—all jewels in the crown. The second tier were generic drug companies, with gross margins dropping from around 40% to over 20%. He turned to look at non-patent agrochemical companies, such as Australia's Nufarm and Maxi Aggan, the latter renamed Adama after being acquired by ChemChina.
— Wang WeiFour stages of M&A; execution is actually the easiest
Wang Wei divides M&A into four stages: determining strategy (the original intention), screening targets, execution, and integration. The execution stage gets the most attention because all intermediaries come in—investment banks, accountants, lawyers, consultants. If you fail, everyone blames you; if you succeed, everyone blesses you. But he believes the strategy stage is the most difficult because it is the starting point; finding the original intention is hard, and harder still is not forgetting it. The execution stage is actually the easiest because a large number of intermediaries and professionals come in to help you.
— Wang WeiSyngenta was both the peak and the end
Wang Wei says the Syngenta deal marked the end of the era, because the era reached a peak and it would be hard to have a larger deal afterward. The first reason is that the macro environment changed: after Trump took office, the trend of anti-globalization began, promoting the China threat theory and U.S.-China confrontation. Various countries have government review mechanisms and no longer approve Chinese companies buying sensitive assets and businesses. Second, there were failed investment cases in this wave; some companies took the opportunity to transfer funds and even assets overseas, leading to capital outflow—for example, HNA and Xiamen Huaxin became hiding places for overseas assets. But he thinks the first point is more important.
— Wang WeiTwo reasons for the barren domestic M&A culture
Wang Wei believes there are two reasons why domestic M&A culture is not strong. First, state-owned enterprises are all organized uniformly by the state and have no need to acquire each other. Second, successful private enterprises are usually still run by the first generation, who have very strong personalities and egos. It is hard for two big bosses to recognize each other; they must think, 'I am better than you, why should I sell to you?' It is hard to find synergy. In contrast, abroad there is a professional manager culture; many companies have passed through multiple generations and are listed, without absolute likes or dislikes—business is business.
— Wang WeiIn their own words · checked verbatim
After I merge with you, I want synergy—that is, incremental profit, one plus one greater than two. Where does this incremental profit come from? Usually two points: first, financial resources; second, getting rid of management.
我跟你合并之后 我要协同效应 就是利润的增量 就是一加一要大于二嘛 这个利润的增量来源于哪呢 通常就是两个点 第一点财源 第二点是把管理层干掉
Wang Wei0:00
Everything before was just preparation. From the day of the wedding, from the day we got together, life has just begun. And whether this M&A deal ultimately succeeds depends on what comes next: whether my integration can succeed.
之前的都是铺垫 从结婚的那天开始 在一起的那天开始 日子才刚刚开始 而决定这宗并购案到底成功与否 关键是看后面 我的整合能不能成功
Wang Wei33:14
In investment circles, there's actually a saying: there are no bad deals, only bad prices.
投资圈其实都有一句话嘛 就没有不好的交易 只有不好的价格
Wang Wei37:50
There is no absolute expensive or cheap, because some things, although expensive, you can buy—or they are unique. Some things are cheap, but you may not need them.
没有绝对的贵与便宜 因为有些东西呢 尽管贵 那你可以买到 或者它是独一无二的 有些东西便宜呢 可能你也不需要
Wang Wei47:22
Its essence is actually that the United States wants to monopolize its economic and political hegemony, and to restrict China's challenge as the number two, its leading position.
它的本质呢 其实就是美国要对自己的经济 还有政治霸权地位的垄断 那么限制呢 中国作为老二的挑战 它的领先地位
Wang Wei1:12:29
Western companies, first, won't bid particularly high; if talks break down, so be it—I'm not determined to win. Second, when I come, the first thing I do is definitely lay off people.
欧美企业是第一出价不会特别高 谈崩了也就算了 我不是志在必得 第二个呢就是我来了 我的一件事一定是裁员
Wang Wei1:23:37
Westerners have a contract culture. No matter how we talked before, how we fought and fell out, it's all fine. But in the end, a text is formed, and once the text is formed, we act according to it—that thing cannot be changed.
西方人是契约文化 他是不管我们之前怎么谈 怎么可打起来撕破脸都可以 但是最终形成一个文本 但是文本一旦形成了就按这个干 那这个东西就不能变了
Wang Wei1:39:42
Figures
| Syngenta deal size | $43 billion | 1:04:27 |
| Syngenta deal premium | about 52% | 1:04:27 |
| Lenovo's acquisition of IBM PC business | $1.25 billion | 24:10 |
| Geely's acquisition of Volvo | $1.8 billion | 24:10 |
| Breakup fee as percentage of deal size | 2% to 5% | 1:01:26 |
| CNOOC's acquisition of Nexen | about $15 billion | 1:16:32 |
| Tencent's acquisition of a gaming company | $8.6 billion | 1:24:37 |
| Gross margin of six major agrochemical companies | around 40% | 44:21 |
| Gross margin of non-patent agrochemical companies | over 20% | 44:21 |
Glossary
- Synergy
- The incremental profit generated after a merger, i.e., one plus one is greater than two.
- management retention
- Retaining the original management to continue operating after an acquisition, a common practice for Chinese companies.
- offtake
- An arrangement to invest equity in order to lock in a fixed supply chain and preferential prices.
- EV/EBITDA
- Enterprise value divided by earnings before interest, taxes, depreciation, and amortization, a commonly used international valuation metric.
- DCF
- Discounted cash flow model that estimates a company's value by discounting future cash flows.
- HSE
- Health, safety, and environment—common environmental, health, and safety production issues for chemical companies.
How to listen
Founders, investors, and engineers following Chinese companies going global through M&A, and those who want to understand the full process of the $43 billion Syngenta deal and M&A integration methodology.
The opening section comparing corporate cultures (3:01-10:56) can be skipped; it has little to do with the main M&A storyline.