The depreciation of the RMB brings opportunities for overseas mergers and acquisitions for Chinese companies
The depreciation trend of the RMB and the strength of the US dollar are deeply affecting the profitability of global luxury and fashion companies, which also gives Chinese companies opportunities for overseas mergers and acquisitions. Recently, Fosun Group, an investment company headquartered in Shanghai, has made another move in the apparel field by investing in the French fashion brand IRO. The transaction is now nearing completion. Sources said that Fosun Group plans to accelerate the globalization process of IRO after taking a stake. After being acquired by Fosun International, IRO will further accelerate the expansion of the Asian market, especially the Chinese market.
It is understood that Fosun Group’s business scope has been continuously expanding in recent years, spanning real estate development, medicine, steel, retail services, etc. So far, Fosun and its management funds have invested in many overseas fashion and lifestyle brands, including jewelry and watch brand Folli Follie, American women’s clothing brand St. John, Italian haute couture men’s clothing Caruso, fashion brand Tom Tailor, etc.
In fact, not only Fosun Group, but also examples of Chinese companies acquiring foreign high-end fashion brands in recent years are not uncommon. In January this year, Shenzhen women’s clothing brand Laurèl acquired the American fashion brand Ed Hardy for 240 million yuan after acquiring the German women’s clothing brand Laurèl; in April this year, the local textile company Shandong Ruyi acquired the French luxury clothing group SMCP; in May , Hong Kong luxury fashion brand agency Bluebell Group announced that it has acquired a large stake in French high-end fashion brand Carven. Since 2015, Chinese fashion companies and capital have invested billions of dollars in acquiring overseas fashion brands, and the transaction amount is the highest in recent years.
In this regard, Samson Lo, head of UBS’s Asian M&A business, said, “The trend of the RMB is an important driving force for Chinese companies’ overseas acquisitions because they are worried about the longer-term prospects.”
Some analysts said that with the global economic slowdown, foreign luxury and fashion brands are facing unprecedented pressure on performance. In addition, the depreciation trend of the RMB and the strength of the U.S. dollar are disrupting the profitability of global luxury and fashion companies, and some companies have experienced serious performance problems. The decline has created new opportunities for companies in China and some emerging markets to carry out mergers and acquisitions.
But at the same time, there are also risks in overseas mergers and acquisitions. Apparel industry analyst Zhao Pei told a Beijing Business Daily reporter that Chinese companies should pay attention to the true value of these companies or brands when choosing overseas M&A targets. “Many companies have a lot of gold and jade, but they are surrounded by external failures. If you invest blindly, you can easily fall into a trap. In addition, the company’s own business philosophy is also very important. After the acquisition is completed, you must see the prospects and trends of industrial development.”
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