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LDK Solar Co Ltd
Germany’s midsize businesses, long considered the backbone of the country’s economy, for years scorned advances from Chinese companies. Then the global economy slumped and German companies stopped playing hard to get. So far this year, nine German “Mittelstand” companies, typically family-owned with fewer than 500 employees, have agreed to be acquired by Chinese buyers, bringing the total to 21 since the beginning of 2011. China surpassed the U.S. last year to become the largest foreign direct investor in Germany by number of deals. “Many Mittelstand companies ran into problems during the financial crisis,” says Christian von Stetten, a German lawmaker in Berlin who helps oversee a Mittelstand committee. “A Chinese investment can make sense and be a way out of the crisis.”
The biggest Chinese takeover came in January when Sany Heavy Industry agreed to buy Putzmeister Holding, Germany’s largest cement-pump maker, for $653 million, including debt. In 2009, Putzmeister’s sales had plunged by half, to €439 million ($549 million), prompting a restructuring and a search for an investor, according to Putzmeister Chief Executive Officer Norbert Scheuch. “Sany was love at first sight,” Scheuch says.
Not that long ago, German owners said they feared that Chinese buyers would dismantle their companies and cut or transfer jobs to China. That would have undermined a segment of Germany’s economy that employs 70 percent of the country’s 42 million workers and yields technological know-how in specialized niches such as machine building, solar power, and automotive supply. “There were concerns that, like American companies and some venture capitalists, the Chinese will suck a company dry, take the filet pieces out, and then dissolve it,” says Marc Tenbieg, head of the Deutscher Mittelstands-Bund (DMB), which represents more than 14,000 small and midsize enterprises.
Chinese purchasers have focused on distressed companies. In January, LDK Solar (LDK), China’s second-largest solar panel maker, agreed to buy Germany’s Sunways, one of the domestic panel makers struggling to cope with competition from Asia. Less than three months after the Sany transaction, China’s XCMG Group, a maker of construction machinery, agreed to buy Putzmeister’s main domestic competitor, Schwing. In March, Hebei Lingyun Industrial Group agreed to purchase Kiekert, the world’s largest supplier of car latches, which had been taken over by its creditors.
Chinese executives are easing German resistance with promises of job security and appeals to national pride. Sany plans to make Aichtal, the southwestern German town where Putzmeister is based, its global headquarters for concrete machinery outside of China. Sany also agreed to keep open all German production sites until 2015 and to avoid layoffs tied to the acquisition through 2020. It will use the German brand in all countries other than China, taking advantage of the “Made in Germany” cachet. Its goal is to boost Putzmeister’s annual sales to €2 billion by 2016, from €570 million in 2011.
These assurances seem to have won over the 3,000 employees at Putzmeister, which has built a reputation providing cement-pumping machines used to build the world’s tallest building in Dubai and to deal with the nuclear disaster in Fukushima, Japan. “We prefer the Chinese because they have a long-term strategy, whereas Anglo-Saxon private equity firms are all about a quick turnaround,” says Sieghard Bender, a union leader who had organized protests against the takeover. “Sany will do everything to make the Putzmeister deal a success.”
The test for the Putzmeister and other takeovers will come if new owners start making management changes, closing factories, or firing workers, says Tenbieg, the Mittelstand representative. “At the moment everything looks rosy,” he says. “Now we have to see whether promises are kept.”
The bottom line: Sany’s $653 million purchase of Putzmeister highlights the increase in Chinese acquisitions of midsize German manufacturers.