RMB 800 Million! CIMC Vehicles Completes the Largest Transnational Acquisition in the History of Semi-Trailer Industry
It is announced by CIMC Group that it has recently bought out the Retlan Group in the UK at a price of ￡91.7 million (more than RMB 800 million). Retlan Group is a company mostly producing various semi-trailers which enjoys a leading position in the UK, with two subsidiaries, namely SDC and MDF. It is understood that this should be the largest acquisition in the global semi-trailer industry during this decade. With this acquisition, CIMC will successfully enter the UK semi-trailer market and further expand in Europe, maintaining its leading role on the global market.
The purchased company has excellent assets and the management team which welcomes CIMC
It is reported that the acquisition was made by CIMC Vehicles (Group), the second largest subsidiary under CIMC Group. According to Mr. David Li, President of CIMC Vehicles, the company made its first contact with Retlan which had the intention of selling in June 2015. Retlan is located in County Antrim, Northern Ireland and also has a Nottinghamshire- based plant. It mostly produces various semi-trailers such as those with side curtains and flat-bed trailers with nearly 1,000 employees. The company has a dominant share on the UK market as one of the largest local manufacturers. It is a perfect match with CIMC Vehicles in terms of the latter’s operations and its dominance on the UK market fills the gap of CIMC Vehicles locally regarding semi-trailer business. Therefore, it has become a target of CIMC for acquisition.
Moreover, CIMC Vehicles has found that Retlan is a company with excellent assets which has kept a record of profitability for years on end through surveys made by world-leading tax and operation consulting companies such as Deloitte, GTM, and McKinsey. Retlan has reported a revenue of ￡198 million for the last fiscal year with a profit of ￡14 million. Before the acquisition, the company was mainly owned by JJ Donnelly and his family, while Mark Cuskeran (CEO) also held a sizeable stake.
So, why would such an outstanding company be put up for sale? According to Mr. David Li, this is a great opportunity for Retlan. The family shareholder that owned the majority of the company is about to retire and his heir has no intention to take over. Therefore, it is a good choice to be sold while the company is still capable of making profits and the leading position enjoyed by CIMC Group in the world’s semi-trailer industry gives Retlan the confidence about its future growth and the development of its employees. The management led by Mark Cuskeran has accepted CIMC readily. He said that this was an excellent opportunity for Retlan to grow in the future and CIMC Group which was in the course of globalization has impressed him.
Therefore the acquisition was carried out smoothly and the settlement was done recently. This should be the most outstanding overseas assets that CIMC Vehicles has acquired in recent years. While the price is as high as RMB 800 million, but Mr. David Li argued that it was good value for money and believed that this would herald a new chapter for CIMC Vehicles to do business.
A triangle deployment strengthening CIMC’s market position in Europe
This deal has a profound significance for the globalization strategy of CIMC Vehicles and even extremely important for CIMC Group which is in the course of transformation and upgrading since Europe and the US cover a large part of the Group’s semi-trailer business. According to Mai Boliang, CEO and President of the Group, while CIMC Vehicles has been ranked No.1 in the world’s semi-trailer industry with 10% market share in 2015, the company would not be the real No. 1 in the world without being ranked among the top 3 in Europe and the US since these two markets are critical for the company.
In 1996, CIMC was ranked the top 1 in the world with the output of containers. Then, to avoid the cyclical risk in the global trade, the Group started to plan the adjustment and upgrading of its strategic business segments. An executive saw the road transportation equipment called Trailer overseas and it looked like “a container with wheels” to him. Such equipment has relevance to CIMC’s business and can be used to address unsafe issues such as the pervasive overload of road transport vehicles in China. The study on the market also shows that the market for such equipment is nearly three times larger than that for containers. Therefore, the semi-trailer segment has been chosen by CIMC as a starting point for its transformation. In 2002, the Group officially announced that it has entered the road transportation vehicle industry after the study on the advanced semi-trailer technology from overseas companies.
While it was proven later that the technology was not as simple as equipping containers with “wheels,” CIMC still realized rapid growth in this industry with annual sales increased from tens of millions of yuan during the early period to RMB 16.6 billion in 2010, playing a leading role on the world market, and the segment has become the second largest part of the Group after containers. Later, with a worldwide oversupply, the Group has timely cut its annual capacity, shifted its focus to a high-quality growth, and managed to maintain profitability despite the overall loss on the market. In 2015, the Group sat on the top of the world again with operating revenue of RMB 12.8 billion. Meanwhile, it has always promoted its development with the concept of “global operation with the wisdom of local employees” and followed closely the local needs. It has entered into the US, Europe, and some emerging markets and rolled out its global expansion through a number of acquisitions. The American subsidiary it bought in 2003 has turned into today’s Vanguard which is the most profitable one under CIMC Vehicles.
However, CIMC Vehicles was challenged by the local companies in the southwestern part of Germany which was the center for its expansion in Europe based on the original planning of the company. In 2014, CIMC Vehicles changed its strategy, built a production base in Poland through LAG it previously acquired, and gradually penetrated into Europe. With the recent acquisition of Retlan based in Northern Ireland, a “triangle” structure was formed geographically in the region. In this way, the company will hopefully cover the entire European market and achieve dominance in the region step by step.
A more fragmented European market might bring greater opportunities
It is worth noting that the acquisition of Retlan coincides with the critical moment of Brexit. While the result of the referendum surprised most of the global media, the acquisition team of CIMC argues that they have anticipated such result during the acquisition. The Brexit will not pose a material impact on this acquisition over the medium to long term nor would it affect the further integration between CIMC Vehicles and the purchased company, let alone the expansion of CIMC Vehicles in Europe.
Mr. David Li said that CIMC Vehicles would continue the deployment of resources worldwide in the long run. Currently, the resources that the Group deploys in Europe, the US, and the emerging markets will be used to significantly offset the risks posed by the exchange rate fluctuations in various countries. This is a strategy that CIMC has planned long ago as a global company. He said that he was optimistic about the future of the Group in Europe no matter how the UK market looks. “Even with 10% depreciation of the pounds, CIMC would still have the control over the situation. To some extent, such a situation is beneficial for our subsidiaries in the UK to export to regions such as Europe, North Africa, and the Middle East.”
While the Brexit will not stop CIMC from expanding in Europe, the Group still has to adjust its strategy with the change of situation so that it would have more precise marketing strategy suitable for local needs. Previously, with Europe as a single body, a single company would have larger coverage. However, the European market will be more fragmented in the future. “A more fragmented European market poses a greater challenge to Chinese companies to grow overseas. Those companies with greater capabilities will achieve greater competitive strength. With years of experience in globalization, CIMC would find opportunities in such a market. It is safe to say that the opportunity would outweigh the challenge,” said Mr. David Li.