On March 31, Jinshajiang Venture Capital announced that several investment institutions led by "GO Scale Capital" (a fund jointly formed by Jinshajiang Venture Capital and Oaktree Investment Partners) successfully acquired 80.1% of Lumileds, a subsidiary of Royal Philips of the Netherlands (hereinafter referred to as Philips). Philips will retain the remaining 19.9% of the shares. A cross-border merger and acquisition that has attracted much attention in the LED market has finally come to an end.
As soon as the news came out, it injected a new shot of excitement into my country's LED industry. This acquisition became my country's fourth overseas acquisition case involving LED since 2013.
According to foreign media reports, global M&A transaction activity experienced the fastest start since 2007 in the first quarter of this year. The total number of M&A transactions in the first three months of this year increased by 21% year-on-year, exceeding US$811 billion.
Factors that have contributed to the boom in merger and acquisition activity this year include: interest rates continue to be low, cheap financing is still abundant, and the improvement in the stock market has kept stock prices hovering at record highs. Central banks in major countries continue to implement loose monetary policies and are still stimulating large economies.
Although the subject of this acquisition is not an LED company, it has become a trend for Chinese LED companies to start trying to directly acquire overseas counterparts. So why do LED companies choose cross-border mergers and acquisitions? What strategies and suggestions are needed in mergers and acquisitions?
Why do LED companies choose cross-border mergers and acquisitions?
As for why Chinese LED companies choose cross-border mergers and acquisitions, TCL Chairman Li Dongsheng said that it is because acquiring brands, channels and customers can help companies quickly enter the two mainstream markets in Europe and the United States.
Wu Shenjun, chairman of GO Scale Capital and co-founder and managing director of Jinshajiang Venture Capital, said that it was a rare opportunity to encounter Philips when it was about to divest its lighting business. The successful merger and acquisition was due to its timely organization of some domestic investment institutions to participate in the bidding. At the same time, the acquisition of Philips was a rare opportunity for us. We can use a very effective method to obtain advanced production technology and have a high-quality customer base to achieve continuous development in the country.
Xu Zhenfeng, general manager of Nationstar Optoelectronic Lighting Division, also said earlier that the integration of capital and technology in the LED lighting industry will further intensify in 2015, and strong alliances are a major development trend; secondly, lighting companies that lack core competitiveness and product features will face the risk of bankruptcy. The increasingly fierce market competition requires lighting companies to find a track that is consistent with their own development, otherwise they will be eliminated by the market.
In the future, integration and mergers and acquisitions in the LED lighting industry will occur more frequently. Cross-border mergers and acquisitions can shorten the time for the internationalization process of enterprises. By acquiring overseas LED companies, they can acquire advanced production technology and equipment in a short time, and have a high degree of brand benefit. For LED companies, it is a sure-profit business!
At the same time, there is also strong support from national policies, including macro policies such as the "Opinions of the State Council on Further Optimizing the Market Environment for Enterprise Mergers and Reorganizations" (Nine Articles of the New Country) and "Guiding Opinions on Accelerating the Acceleration of Mergers and Reorganizations of Enterprises in Key Industries" launched in 2013-2014; there is also the "Foreign Investment Law of the People's Republic of China (Draft for Comments)" published not long ago by the Ministry of Commerce. The introduction of national incentive policies will not only release a strong signal to promote overseas investment, but will also further enhance the enthusiasm of Chinese LED companies for capital export in cross-border mergers and acquisitions.
M&A strategy analysis
1. Expand horizontal business and realize strategic planning
Expanding market share and achieving monopoly advantages through horizontal business mergers and acquisitions are the inherent needs of LED companies’ internationalization strategies. Expand the business scale of the LED industry chain and implement cost-first strategic planning.
2. Make up for business shortcomings and expand into emerging markets
Extending terminal LED product lines through capital mergers and acquisitions and strengthening the interconnection business of the LED industry chain are major measures for LED lighting companies to develop and layout the global market. Take Sanan Optoelectronics' acquisition of the American LED company Luminus Devices in 2013 as an example. Sanan's acquisition achieved a comprehensive layout covering all aspects of LED product design, manufacturing solutions, packaging, systems and applications.
3. Adjust the business structure and optimize the business model
The sale of Lumileds and the adjustment of the profit model are important measures to promote the transformation of Philips' business model. In recent years, Philips has expanded its product sales market through a series of sales, spin-offs and other activities. With the rapid development of LED products in China, cheap LED energy-saving lamps have continued to flow into the market, causing the profitability of Philips' lighting business to continue to decline, forcing Philips to adjust its model and abandon the lighting business.
Suggestions for domestic LED companies
Actively look forward to layout and promote resource integration. Focusing on global cutting-edge development trends, combined with the development trends of enterprises in the LED industry, and taking a long-term perspective, we formulate long-term corporate development strategic plans, actively integrate industry resources through mergers and acquisitions, and conduct forward-looking layout of the LED market.
Use capital leverage to strengthen core advantages. Make full use of policy advantages, give full play to the financial leverage and multiplier effects of the government and enterprises, use diversified financing as a link, supplement and adjust corporate assets through mergers and acquisitions, and strengthen core competitive advantages based on local market demand.
Attach importance to the international market and expand its diversified LED products outwards. Actively enter the international market, gradually penetrate through strategic cooperation, capital injection, acquisitions and mergers, etc., absorb advanced technology and management experience, make full use of foreign resources, establish R&D centers, set up production and sales branches, broaden market channels, seek market diversification and expansion, and improve international competitiveness.
Summary:
As my country's LED industry becomes bigger and stronger and the demand for internationalization continues to strengthen, more companies and capital may go abroad in the future. Cross-border mergers and acquisitions provide a convenient way for Chinese LED companies to expand overseas sales channels and customer groups, and gain more overseas market shares. However, in the process of internationalization, it is necessary to assess the situation and pay attention to the development of the company itself when "backdooring". I believe that my country's LED industry will shine and grow in the international market in the future!
ANNA