When the Australian Federal Government blocked the sale of one of Australia’s largest cattle stations, S. Kidman & Co, to Chinese buyers it stirred up the usual amount of debate on national interests versus international investment.
At almost 11 million hectares, or 1.4 per cent of Australia’s land mass, and with half of one of the Kidman properties sitting within the Woomera Prohibited Area in South Australia, there was a set of unique factors that made the Government’s decision more understandable.
While it’s an emotional issue for many Australians and a potential minefield for our politicians, for many businesses across a range of industries, it’s becoming harder to argue against the significant potential that the Chinese beast offers.
Although it’s an extreme case, at a reported bidding war of above $350 million between multiple Chinese companies, the S. Kidman & Co case is yet another example of the huge opportunity on offer for Australian companies willing to entertain the idea of selling.
A slowing appetite?
Despite predictions of a slowdown of China’s economy over the coming decade, a recent trip to the country reinforced in my mind that the deceleration of the country has been largely overplayed.
Fundamentally, the Chinese economy has to slow but nevertheless, its growth will remain greater than any OECD country for the foreseeable future. The slowdown is likely to be somewhere in the vicinity of 1%, but it’s not going to reach anywhere near the 3% that has been predicted by some commentators.
The sheer scale and appetite of the country’s development is almost inconceivable. Its steel productivity accounts for half of the global output, and exceeds that of the 2nd, 3rd and 4th countries combined. The number of vehicles being produced exceeds 24 million, more than double the production of the United States.
Each year, the country produces 351 million personal computers and 1.63 billion cell phones, accounting for almost 86% of world production.
These trends are being driven by the rapidly increasing middle income class with greater disposable income, which is in turn driving consumption and the demand for investment.
While I could keep on going with the numbers, the unthinkable potential of China is nowhere more evident than on the Shanghai Stock Exchange, where investment demand is seeing companies being valued at 100 times their earnings.
It’s scary stuff, and while it draws parallels with the dot-com bubble of the late 90s and may not be sustainable, at the current time, it is this insatiable demand that is driving Chinese companies to search the globe for new opportunities that are going to deliver returns for them on the stock exchange.
The time is now
For Australian companies, the demand being driven by the Shanghai Stock Exchange offers massive opportunity to achieve a premium price for their operation.
While the current focus is on agribusiness, as witnessed by the S. Kidman & Co bidding war and numerous other examples, there are going to be opportunities across the food and health sectors because of the global reputation that Australia has in both of these areas.
With that said, any trading opportunity that has relevance to the Chinese market, and has scalability, has the potential to be appealing to buyers.
So although selling your business may be far from your mind, and assessing the appeal of your company for an overseas suitor even further, now is the right time to review and plan for an opportunity should it come knocking.
Assessing the appeal of your company for Chinese investors
- Strong application to the Chinese market – Do you have a product or service that is in demand in the Chinese market or will be in the future? Australia currently has a reputation for high quality food and health products and services, but as the Chinese market becomes more westernised, the opportunity for other industries will grow.
- Meeting the demand – Does your business cater to the demands of the growing middle class population? Energy, raw materials and food are in massive demand and buyers are interested in companies that provide ready-made and quickly scalable solutions to this need.
- Strategic value – Is there currently a gap in the Chinese market for your product or service that could provide strategic value to a Chinese buyer? To assess this, you will need to work to understand the Chinese market better, or partner with someone who knows the territory.
- The domestic advantage – Does your business provide some domestic advantage for a Chinese company? Domestic competition in China is intense, with many companies looking globally for products or services that deliver competitive advantage. In some cases it is preferable to buy this expertise than to grow it organically.
- Hi-tech advantage – As China transitions to a high-tech and innovative future, there will be growing opportunities for any tech business that has an application to the Chinese market.
If you fall into one of the above categories, now may be a good time to engage an advisor who understands the demands of the Shanghai Stock Exchange and the complexities of the Chinese market, but also represents both Chinese and Australian interests in these matters.
A good advisor who has experience acting for both Chinese companies and Australian businesses can provide significant value to any cross-border sales transactions.