Gordon Orr says:
M&A is the preferred globalization route for Chinese companies – 70% of outbound Chinese investment is done this way. For some of the companies I have seen, it was a conscious “bet the company decision”; for others, it unintentionally became that, especially for major acquisitions and serial deals.
From 2008 to 2012, the 44 Chinese companies which made acquisitions worth more than 30% of their market capitalization underperformed their Chinese industry peers by 16% in terms of total returns to shareholders. In the same period, the 8 Chinese companies which made two acquisitions or more underperformed their peers by 12% using the same metric. When problems arose, too often the core question revolved around the competence of the acquired management team – and especially the CEO.
Were performance issues really unavoidable or did the company have a culture of accepting under performance? In many cases, I have seen the Chinese acquirer be much more performance-driven than the company they acquire. Unfortunately for them, it is the rare acquisition where the entire management team are top performers and will want to stay.
In most cases, some changes are required in the first year, so for a company making its first major international acquisition, learning how to assess the acquired top team, when to replace someone, and how to identify and attract a stronger replacement are absolutely central challenges. So how can executives avoid falling into the under-performance trap?
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