STRATEGY AND M&A WITH EXPERTISE IN CHINA AND SOUTHEAST ASIA
Depending on the individual starting situation, the strategic objectives for the target region and countries, as well as the general conditions, we work with our clients to develop and implement an individual strategy for conquering the world’s growth markets.
We use our networks in Asia, Europe and the USA for investor processes.
Outstanding success is only possible with the right strategy, i.e. one that is suitablefor the target region like Asia or Europe.
M&A and JV with specific challenges in China and the countries of Southeast Asia and Europe.
"Without capital, everything is nothing" - also use local sources of capital from the target country.
For us, strategy means knowing where the company stands in the European, Chinese and Southeast Asian markets, where and how it can realistically be positioned and what the implementation model should look like.
The customer must be the focus of every strategy, as a product or service must also meet relevant and specific needs in target markets like Europe, China or South East Asia. It is also necessary to determine how benefits can actually be realized for the customer – for example through increased safety, quality or compliance. For this reason, MRL conducts customer and expert interviews in the target country, for instance with surgeons in China, and evaluates them for strategic relevance. Competitors from China, Japan, South Korea, the USA and Europe, for example, are interested in attractive life science markets, which is why a sustainably successful positioning is critical for our clients. We develop these for the respective target markets and help to implement them.
Even if the population in China and Southeast Asia appears gigantic by European standards, the realistic sales potential for high-end (premium) products and services from the West is generally significantly lower than estimated using a simple population multiplier, as the supply ratio and purchasing power are simply very different. Nevertheless, for a medium-sized manufacturer of medical technology, for example, a realistic sales potential in China can result in a doubling of existing sales. In addition to concrete facts from the analysis of the target country and market segment, the company’s own resource bottlenecks (capital, management) are also decisive for realistic targets.
Not all services and products from all of the company’s divisions are always as relevant for the target markets in Asia as they are for Western markets ane vice versa. The product-market (or service) combination with the price positioning that takes into account the markets, costs and return targets – considering the margins of distributors or own subsidiaries, for example – are the most important influencing factors of the business plan together with the target market shares.
For medtech, the registration strategy must be derived from the defined product priorities, the respective business potential and registration costs (which can be considerable). MRL Advisors supports the selection of a suitable partner (CRO) for the product registration according to the criteria agreed with our clients.
The core issue of strategy implementation is the selection of the right model – either “stand-alone” (organic) or with partners or targets (joint ventures, acquisitions, investments). For the successful selection of the right option, there are significantly more relevant criteria to consider than in the West – such as the presentation of control in the case of JVs or the determination of compliance risks in the case of acquisitions. MRL Advisors has developed relevant insights on the topics of joint ventures and acquisitions based on a wide range of experience, which we are happy to send to interested parties.
Organic implementation can also be promising, as many relevant markets, e.g. in Asia, are developing at a pace that is often unknown to Western companies.
In many industries in China and Southeast Asia, as well as Europe, the buyers (customers) are not always fully accessible with their own sales teams, which is why (sub-) distributors are usually involved. MRL Advisors designs the specific model for the target country China, for example, on the basis of our clients’ objectives, benchmarks, practices and target criteria, e.g. with regard to the strategic management of activities in the target country. It is important that the distributor’s remuneration is compatible with the added value. MRL Advisors also provides targeted support in the selection of suitable distributors and the commercial negotiation of distribution contracts.
If local production is being considered as a value creation model, MRL Advisors will provide support with the appropriate model, including the choice of location. The location of an own sales company also has both a strategic and an image effect and should be chosen on the basis of clear criteria.
“Structure follows strategy” – this naturally also applies in the target countries of Asia and Europe. The right organizational model – adapted to the development phases of the company in China or Southeast Asia and in line with the organizational culture of our clients – is sometimes of crucial importance. This also includes defining the roles of management bodies such as CEO / GM, board of directors, legal representative, supervisor, shareholders’ meeting, etc. We also structure the legal entities from a commercial perspective on the basis of the basic options.
The organization of the supply chain and its financing, i.e. the resulting working capital, has a direct influence on financial planning. In the case of a regional approach to Asia, a cross-country view can be expedient. MRL Advisors models the supply chain for e.g. export business or local production in order to generate the input for financial planning and ongoing management. This also includes, for example, determining the usual payment terms of (sub-) distributors in the target country, e.g. China or Thailand, in the respective specific sector.
Our clients generally require realistic business plans that include all relevant costs and expected cash flows, including working capital and investment requirements. We derive the expected financing requirements from the business plans. These are often covered from the existing cash flow or through the acquisition of third-party capital – because there is no shortage of capital for attractive business models in Asia.
No matter how great the potential and plans, without implementation it remains theory. In dynamic markets such as Asia, the speed of implementation is of considerable importance – a speed that some companies in the West are no longer used to. MRL supports both the development of the structured action plan and the implementation of key measures on site.
Funding is also available and can be acquired locally in Asia or Europe for attractive projects in the Technology or Life Science sectors (see separate point).
MRL Advisors does not work in recruitment. We are happy to support our clients in selecting and briefing the right headhunter for their vacancies. We are well aware of the criteria for and of executives in China or Germany, for example.
MRL believes that the registration of medical devices themselves, for example, should be carried out by specialists with experience in the sector (CRO). MRL is a bridge builder and ensures sustainability during implementation.
As an option, the MRL Advisors team is prepared to make ongoing value-adding contributions as a minority shareholder in the (subsidiary) company in the target country, e.g., China or Germany. The model of entrepreneurial co-investment developed by MRL Advisors, which has already been successfully implemented several times, can demonstrably and significantly increase success in the target country (see separate section).
We manage the process of selling European or Chinese companies from our Munich office. In coordination with our clients, we approach the most important global investors for the company, including in the USA, DACH and other European countries. In China and Southeast Asia, we work together with our local team colleagues in Asia.
We help to ensure that the realistic value of the company on offer is significantly increased by including the Asian markets (we call this perspective “China plus”). On average, for example, technology companies in Asia (e.g. China) are valued significantly higher than in Western countries.
In managing the investor process, MRL Advisors follows international standards – with Fact Book / Info Memo (also in Chinese), anonymized approach, NDA, LOI / Termsheets, etc. and negotiation support – until the closing of the transaction.
License transactions are now also an accepted instrument for accelerating the development of business and markets in China and Southeast Asia. The realistic sales potential in the target country, e.g. China, with the technology in focus is also important for license transactions. Benchmarks from comparable transactions provide negotiation targets. Both are selected important components for licensing success.
Depending on the specific situation and potential, license-like transactions can also be significant. In certain distribution models, for example, lump sums were paid in advance by the Chinese distributor in exchange for the distribution rights, which enabled our client’s technology development to be financed further.
An acquisition can be an effective step towards strategy implementation. However, the strategic objective – e.g. covering mid-market segments via a local second brand in China – should be clear in advance. The criteria with which the targets are screened should then be defined on the basis of the objective and other framework conditions. MRL compiles meaningful information on potential targets at this early stage – because selecting the “wrong target”, which is a greater risk in Asia than in the West, must be avoided.
What strategic fit will the acquisition create – to what extent will the strategic target positioning actually be supported by the acquisition? In addition to these core questions, we work with our clients in advance to design the rough target integration model, which is also of great importance for the successful transaction. We have defined a rule of thumb: The more dynamic an environment is, the more decisions have to be made locally, which is why integrations into a “global matrix” of e.g. China-based companies often do not promise success to the same extent as in the West.
Not only in Europe, but also in China and Southeast Asia, MRL Advisors finds ways to enter into discussions with the actual decision-makers of the targets, primarily through networks and suitable approaches. We can effectively convey the seriousness of the approach.
Attractive Chinese or German targets and targets in other Asian countries in attractive sectors such as technology usually receive a large number of inquiries from investors. MRL plays a key role here by convincing decision-makers to enter into discussions with our clients (instead of pursuing an IPO, for example).
In initial discussions, we evaluate the critical points of a potential transaction, develop suitable transaction models and coordinate these with our clients.
You need to know negotiating tactics in the target country, be it China or Germany, in order to act appropriately.
While the M&A process itself has similar content worldwide, the topics of due diligence and compliance are particularly important in Asia, including China and countries in Southeast Asia.
For example, MRL has already identified latent cost traps in the double-digit million euro range for one target (keyword: decontimation requirements) and then advised against a transaction. We have successfully negotiated suitable targets through to closing – with a value added contribution to the negotiation result that corresponds to a multiple of our fee.
The establishment of a joint venture usually extends far into the future, which is why it should be carefully evaluated and planned. In addition to the issues of strategic and operational management of the JV, IP protection mechanisms, capital contributions, dividend shares, non-competition clauses, distribution of shares, etc., the right partner is also crucial for success. As a rule, MRL Advisors advocates a model in which the “IP owner” (our client) has a real opportunity to manage and control the activities in China and countries in Southeast Asia. This is the only way to adequately manage the risks. Our INSIGHTS contain further information on this.
In Asia’s future-oriented industries such as technology, medical technology and biotech, the clear, fact-oriented and comprehensible determination and presentation of future business potential is the main driver for an exceptional company valuation, successful partner constellation and transaction, both for the establishment of a joint venture and for the successful acceptance of investors.
The selection of the right JV partner in China, Southeast Asia or Europe, is also complicated by the lack of transparency for our clients. We create the necessary transparency and determine image, compliance track record, actual ownership and financial basis, realistic expected contribution to the JV and much more information before selecting a partner for a JV. We prefer to draw up lists of potential partners and their profiles on the basis of strategic criteria before we start initial negotiations on behalf of our clients.
Not only the shareholding ratios that are important in a JV – the control of compliance and the management of the company, i.e. the design of the management organization and connection to the European core company, are critical. In the case of JVs, we recommend that the IP owners – usually our clients – exercise significant control over the activities of the JV in Asia. A possible exit and the corresponding implementation, including valuation issues, should also be considered in advance.
With the co-involvement of MRL Advisors on site, both control and other value-adding management effects can be realized (see page Investments).
In addition to the identification of a suitable investor and the successful implementation of the transaction, the determination of the equity value is of critical importance in every equity transaction. This is where our experience in the realistic determination of medium to long-term growth potential in China, Southeast Asia and Europe comes into play, which, coupled with our transaction expertise, leads to an above-average valuation.
For young, fast-growing companies, equity capital from China or other Asian countries is sought in particular to prepare for market entry or to develop the local market. As a rule, this is “intelligent” capital with network effects through the investor.
The Hong Kong Stock Exchange has established a board for attractive companies from the life sciences sector, for example, which also enables companies to IPO pre-revenue (similar to NASDAQ). According to analyses by MRL Advisors, around 50% of the capital invested in the HKEX comes from Asia, with the remaining 50% coming from the West with a focus on the USA. This is another reason why an Asian growth story (especially China) is essential for the IPO in Hong Kong. MRL Advisors has developed an INSIGHT on this topic, which can be accessed by interested companies (contact field).
Restructuring of local investments in, e.g., Germany or in China may require temporary or longer-term equity solutions. Co-investors for acquisitions, investors to take over distressed assets from specialized investors can provide individual solutions.
Convertible loans for growing companies in the technology or life science sector can also be acquired from the target country, e.g. China, Germany or Southeast Asia – but only if the preferences of both sides are deeply understood. MRL Advisors has already successfully structured convertible loans from China for technology companies from DACH with innovative elements.
Depending on the situation, creditworthiness, collateral, etc., debt capital can be realized in China, Germany and potentially other countries in Southeast Asia. If debt capital is to be identified and acquired locally, MRL Advisors implements a structured debt capital process (we are glad to send interested parties service descriptions on request).
For projects of an investment nature, it should be examined whether public investment guarantees can play a role. They primarily cover political risks in the target country of the investment.
Optionally and at the request of our clients and after examining the potential of the business model in the target countries such as Germany, China, South Korea, Thailand, Singapore or Indonesia, MRL Advisors is prepared to become a minority shareholder in the local activities, for example in our client’s subsidiary. This gives our client an insider as a reliable partner with completely aligned interests – unlike a joint venture partner from the same industry, for example. Our involvement can be very long-term – or temporary if our clients wish.
In the case of joint ventures, the function of building bridges between our client and a joint venture partner from the other region (Europe or Asia) can be highly relevant in addition to our value creation from active support. On behalf of our clients, we have already developed innovative shareholding and governance models with German and Asian joint venture partners, which enable a new form of cooperation and strategic control.
In addition to investment management by professionals from MRL Advisors, corporate services can optionally be provided by specialized partners of MRL Advisors in the target countries. By delegating finance, controlling and HR tasks, for example, the compliance of local activities is effectively supported. Our partners can also act as incubators, using existing offices in attractive locations (e.g. Munich, Shanghai, Beijing, Singapore, Bangkok) as a platform.
We are in contact with several wealthy entrepreneurs who are keen to invest in promising opportunities in Germany or Asia.
MRL Advisors takes over the value-adding investment management so that the existing potential is actually realized.
“Strategy and M&A: Your key to success in China and Southeast Asia – with expertise that connects.”
Frank-Christian Raffel, Founding Partner MRL Advisors GmbH
Munich
Shanghai
Shareholdings in:
Hong Kong, Beijing
Singapore, Manila
© Copyright – MRL Advisors GmbH. MRL Advisors GmbH is an independent consulting company based in Munich. Participation Hong Kong and Beijing: Sister company MelchersRaffel Ltd.
MRL Advisors GmbH does not provide legal advice and works with specialized lawyers at the request of clients. Unfortunately, MRL Advisors GmbH does not accept engagements from companies located in the USA.
