Workers of New JACK Sewing Machine Co Ltd operate sewing machine production lines in a workshop.The Zhejiang-based company has just taken over two German textile machinery businesses Bullmer and Topcut. File Photo
The first successful overseas acquisition by a privately owned Chinese sewing machine operator is expected to expand the product lines and reach of New Jack Sewing Machine Co Ltd, analysts said.
New JACK, based in Taizhou, Zhejiang province, last month purchased two German textile machinery businesses, Bullmer and TopCut.
New JACK, one of six subsidiaries of Jack Holding Group Co Ltd, paid 45 million yuan for the brand names, technology, effective stocks and human resources -- but not the debts -- of the two German enterprises.
New JACK combined the acquisitions into a new company named TopCut-Bullmer.
"New JACK mainly produces sewing machines, and the two German businesses were masters of cutting systems. So, after this acquisition, we will have more product lines," Jack Holding Group Chairman Ruan Fude told China Business Weekly.
Bullmer was one of the world's top three manufacturers of automatic cutting beds and spreading systems.
It provided machines for more than 10 industries involving clothes, textiles, suitcases, furniture, automobiles and aerospace.
TopCut was a leading maker of automated leather-cutting systems, supplying equipment and services to leather, textile and apparel sectors.
Founded in 2003, New JACK is among the top three sewing machine makers in China.
Ruan said that New JACK's exports reached 57.5 million yuan in 2008, up 28 percent year-on-year, even as exports for the industry in general dropped by more than 30 percent.
The combination of the three businesses, therefore, is "of great significance", according to an official of the China Sewing Machinery Association.
New markets
Ye Zhigang, an analyst with Haitong Securities, said the acquisition would allow New JACK to expand from traditional clothes and textiles clients to high-end automobile and aerospace giants.
Ye said the deal also would help New JACK enter the international market via the sales networks of the German companies.
New JACK also can incorporate the mature marketing and management skills of the companies, analysts said.
The newly established TopCut-Bullmer will base its management and operations systems on those of the two German companies.
At the same time, the new company will make use of New JACK's strengths in the domestic market, including its quick response system.
New JACK was well prepared for the acquisition, having already started to use the SAP ERP business management system developed by SAP AG and popular in Germany.
The system, which also was in use by the two German companies, integrates planning, manufacturing, sales, marketing and other facets of a business.
Earlier this year, New JACK tried and failed to purchase PFAFF Industrie Maschinen AG, Europe's largest sewing machine manufacturer. The Chinese company was outbid by a Germany company.
"It was not a problem of New JACK or PFAFF. It was about uncertainty in a transnational acquisition," Ruan of Jack Holding Group said.
"After the failed deal, New JACK came to have a clearer view of the competitive environment as a transnational buyer and have a better understanding of the characteristics, policies and laws of overseas acquisitions, which contributed to the success of the Bullmer and TopCut deals," Ruan said.
Consensus
Ruan said a challenge in any transnational deal is finding companies able to reach consensus on business philosophies.
"But things seem easy, because we share the same values and goals," Ruan said about the purchase of the two German firms.
Overseas acquisitions by Chinese enterprises have witnessed robust growth in recent years.
Thomson Reuters reported that the transaction volume of overseas mergers and acquisitions (M&As) by Chinese companies reached $21.8 billion from Jan 1 to Feb 17 -- up 40 percent compared to the same period a year earlier.
At the same time, the value of worldwide cross-border M&As dropped 35 percent to $73 billion.
"The global financial turmoil and economic slowdown directly led to purchasing cost drops, providing a good opportunity for Chinese enterprises to carry out M&A in the international market," said Jin Bosheng, a research analyst with the Ministry of Commerce.
However, while making an overseas purchase is easier, the challenge is how to successfully integrate resources, personnel and sales channels, Jin said.
"Chinese enterprises, especially privately owned enterprises, should become familiar with the operating model in developed markets and merge Eastern and Western corporate cultures to realize a smooth transition and sustainable development of the new company," Jin said.
