The Trend of ‘Going Abroad’ of China Environmental Companies
With the national planning and international trends of “Silk Road Economic Belt & Maritime Silk Road "and "The Environmental Economic and Technical Cooperation among Developing Countries", China’s environmental enterprises have taken frequent actions for "going out" recently.
A number of recently conducted oversea M&A cases (such us Beijing Capital’s 5 billion yuan transaction towards the biggest municipal waste disposal company in New Zealand, TPI-NZ) seems to indicate that these Chinese environmental companies have grown to have great power and ambition of bring their business abroad. It’s the time to raise the question: has the "going abroad era" of China’s Environmental industry arrived? Has "going out" already been the trend that has to follow? Let’s find the answer from major companies’ financial data.
Is overseas business good business?
In conventional thinking, oversea business is relatively more productive and profitable in terms of higher economic development and consumption level.
In order to find out whether it is still the case or not in environmental industry, we use the differences between companies’ domestic and abroad profit margin and an indicator that reveal how much oversea business overweighs domestic business.
From 17 environmental listed companies’ data in 2014, it shows no identifiable difference between domestic and abroad profit margins. In other words, the environmental listed companies have almost the same profitability in Chinese and oversea environmental markets. Oversea business is not as good as they imagined.
Has the trend already came?
Among the 66 environmental listed companies in China, there are 26 ones have income from abroad —— the number is considerable. But when take the proportion of oversea revenues into consideration, it can be find that most environmental companies’ income from abroad take over only a small part, most under 1/5. Moreover, as those with higher proportion of oversea income are mostly environmental products/equipment manufacturers, the very part of revenue highly relies on product export instead of oversea project operation.
In fact, the further analysis on the annual increase of the oversea income from 2013-2015 shows that these environmental listed companies have the growth of overseas revenue in recent years, but this growth is relatively slow. Especially in this year of 2015, the growth of overseas revenue is behind the growth of domestic revenue so that the proportion decreases.
All the facts point out the conclusion that in spite of the hot discussion about the oversea strategies of the major environmental companies, generally there is still a long way to go for them to enter the oversea environmental service market and build their goodwill.
The emerging tide of oversea M&A
According to public information channel, China's first overseas M&A of the environmental enterprise began in 2012. Then overseas M&A became phenomenal among China environmental companies, especially in 2014 and 2015, in spite of the stable oversea income.
It is easy to explain that why such an increase of oversea acquisitions doesn’t result in the rise of oversea income. The main strategic goal of these M&A cases is to acquire technology and patent products. Only a few of these overseas M&A cases relate to overseas project operations.
Actually, for the growing companies, which are lack of experience, overseas M&A cases have high uncertainties in the legal and financial field. The export is one thing and making the project for decades is quite another. Most of the environmental enterprises cannot take the risk of overseas M&A projects. As The CEO of Sound group Wen Yibo said that "The M&A in China is not very convenient and China's approval is too complex. Foreign companies sometimes prefer to sell themselves to the others in a cheaper price and do not want to sell themselves to our Chinese enterprises. Because they think Chinese enterprises have a lot of uncertainties. Although the price is relatively high, M&A case may not be granted or be granted after a long time in the end. "
Conclusion: still a long way to go
With the analysis of the different dimensions above, we have understood the status and trend of "going out" for China's environmental enterprises. Answer the question at the beginning: In the view of the internal enterprise conditions, industrial environment and international environment, the best time of overseas business for the environmental enterprises has not come yet. The tide of "Going out" is still brewing and now overseas M&A is just the forward waves of this tide. At this stage, the theme of environmental enterprises is to sow, to make a layout, to have a try and to recognize themselves and strategic planning. Like the international road of RMB, even though there is now a beautiful dream, the road international of environmental enterprises still needs time and effort inevitably. At this stage, the environmental enterprises require not only the patience, but also careful and effective implementation of the strategy. When "going out" is no longer a slogan and products services of domestic environmental enterprises have international standards, Dollar and ruble will naturally come.
Appendix: the timeline of overseas M&A for environmental enterprises
In June 2012, Focused Photonics purchased 75% stock shares of BohnenBeheeer Company with 31 million Yuan and obtained VOC monitoring products and technology.
In March 2013, BEWG purchased Portuguese Veolia water assets: The target assets include four concession projects and three commissioned operation projects. The cost is 95 million euros (about 780 million Yuan). The whole project has the total size of 36,000 tons and 22,000 tons of sewage water per day. It includes 20 sewage treatment plants, 4,000 kilometers pipe network and serves a population of 670,000.
In August 2013, Sailhero Environmental Company purchased 51% stock shares of American Heavy Metal Monitoring Cooper Environmental Services Company with 4.233 million Dollars (about 26 million Yuan). Then it made the capital injection of 2 million dollar and expanded its stake to 60.515%.
In November 2013, Interchina Water purchased 42% stock shares of Josab International AB Company with 32 million Yuan, a water treatment equipment listed company in Stockholm, Sweden. Interchina Water acquires the small unit of water purification equipment and technology from the target company.
In December 2013, Interchina Water purchased 60% stock shares of Denmark BioKube Company with 73 million Yuan in order to make the layout of rural wastewater treatment market. The target company was founded in 2003 and its main business is small-scale sewage treatment system. Its products specifications are from 1 cubic meter per day to 1000 cubic meters per day.
In March 2014, Beijing Capital bought 60% stock shares of Transpacific New Zealand Company (TPI NZ) in Australia's Transpacific Industries Limited Group. The first purchase price is 950 million New Zealand dollars (about 5.168 billion Yuan). The target company in New Zealand is the leading solid-waste enterprise.
In July 2014, Techcent Environment purchased perchased 45% stock shares of CNP-Technology Water and Biosolids GmbH with the way of capital increase. The cost is 495,000 Euros (about 4.13 million Yuan). The target company’s core product is AirPrex system, which is mainly used for sludge treatment.
In January 2015, Pret Composites purchased 100% stock shares of Wellman Plastics Recycling LLC, one of the largest plastics recycling enterprises in U.S.A
In May 2015, Techcent Environment purchased 100% stock shares of US environmental separation equipment (sewage sludge treatment and disposal facilities) Manufacturing and Environmental Engineering Paladin Company (Centrealestate Inc.) with 470 million Yuan.
In May 2015, Sailhero Environmental Company purchased 60% stock shares of American Sunset Laboratory Inc with 6.6 million Dollars (about 40.1 million Yuan). Sunset Company is founded in 1984. The main business of the target company is aerosols particle analyzer of organic carbon and elemental carbon (OCEC).
In May 2015, SDL purchased t purchased all the stock shares of British flight mass spectrometer manufacturing Kore Technology Limited Company with 15.6 million Yuan.
In June 2015, Beijing Capital purchased 100% stock shares of ECO Industrial Environmental, which is the only one of the waste disposal company in Singapore that has the ability of sludge treatment. Its capacity of sludge treatment is up to 570 tons / day. The target company is Southeast Asia's first and largest sludge treatment enterprise.
In June 2015, Zoomlion Company purchased 75% stock shares of environmental investment operator Ladurner Company. The bid of Zoomlion Company is totally 57 million Euros (386 million Yuan) and Zoomlion Company acquires 57% stock shares of the target company. The target company has more than 30 environmental protection projects.
In July 2015, Focused Photonics purchased an Italian water-quality online monitoring manufacturing Systea SPA Company.
In August 2015, Yonker Environmental purchased 51% stock shares of American soil Remediation Integrated Science & Technology Company. The target company has been involved in the completion of "the Remediation of Kuwait Pollution in Gulf War ", " the Groundwater Remediation of hexavalent chromium Pollution in California", "Oil Remediation of well blowout inItalian Trecate " and other remediation projects.