Illustration by Rafael Ricoy
Germany has long enjoyed a lucrative trading relationship with China. The enduring success of the European country's export-driven economy owes much to the fast-developing Asian powerhouse, which displays a seemingly insatiable appetite for Germany's industrial and technical products. More than 11 percent of all machinery produced in Germany's core industrial sector goes to Chinanow the world's second-richest country after the United States. China is also a key export market for Germany's luxury carmakers, such as BMW AG and Volkswagen AG's Audi divisionkey clients of U.K.based Norton Rose and Germany's Noerr, among others. And despite the recession, the volume of business is still growing. During Chancellor Angela Merkel's visit to China last September, the two countries signed a new Sino-German economic and cooperation agreement. As part of the deal, Volkswagen recently announced plans to open a parts factory in the northern coastal city of Tianjin.
The investment is not purely one-way, however. Attracted by superior technology and a highly skilled workforceand, cynics might say, by the opportunity to increase products' value with a "Made in Germany" stampChinese businesses have also been investing increasingly heavily into the country. According to Germany Trade and Invest, the government's economic development agency, Chinese companies were the single biggest investors in Germany in 2011, overtaking the United States for the first time. Mergermarket data shows that the total value of announced Chinese investment deals in Germany grew to $1.7 billion in the first nine months of 2012an annualized increase of more than 200 percent. Germany attracted 12 percent of all outbound M&A transactions from China during that periodsecond only to Hong Kong. You now hardly find any auction process without some Chinese involvement, says Noerr comanaging partner Dieter Schenk.
In addition to the automotive and engineering sectors, Chinese money has poured into the German chemicals, financial institutions, pharmaceuticals, and energy and infrastructure industries. The rising level of investment has been a welcome fillip to the country's top transactional practices.
In August, Chinese automotive and equipment manufacturing company Weichai Power Co. Ltd. paid $928 million for a 25 percent stake in German forklift truck maker Kion Group GmbH and its hydraulics subsidiary. The largest-ever direct investment by a Chinese company in Germany, the acquisition created roles for a host of leading international German and Chinese law firms, including Freshfields Bruckhaus Deringer, Gleiss Lutz, Hengeler Mueller, King & Wood Mallesons, Paul Hastings, and Reed Smith.
Another recent marquee deal saw Shearman & Sterling team up with Chinese law firm Jingtian & Gongcheng to advise Sany Heavy Industry Co. Ltd. and private equity firm CITIC PE Advisors (Hong Kong) Ltd. on their joint $661 million purchase of Putzmeister Holding GmbH, which manufactures high-tech concrete pumps. (Putzmeister, one of the small and midsize "Mittelstand" companies that play a crucial role in Germany's economy, was represented in its sale by Baker & McKenzie. See chart, "Chinese Takeout," for details of big-ticket Sino-German deals.)
"We're looking at a new stage of Chinese investment in Germany," says Hengeler corporate partner Christian Möller, who heads the firm's China desk. "China has massive reserves of funds and is looking to use that to acquire technology abroad. That's really the core of German industry, which is why we're seeing so much activity."
China Construction Bank, a client of U.K.based Herbert Smith since the firm acted on its $9.2 billion IPO in 2004, is reported to have set aside $15 billion for acquiring financial institutions in Europe. Möller also expects to see a growing number of Chinese deals within the auto supply industry, with many of the German companies in that sector having been bought by private equity firms that are now looking to exit.
German law firms are busy positioning themselves in an attempt to tap into the increasing work flow. Beiten Burkhardt and CMS Hasche Sigle already have small offices in Chinastaffed with a mixture of expat and locally hired lawyersto try to capitalize on the rising demand from Asian clients. Graf von Westphalen recently bolstered its Shanghai office, opened in 2008, with the hire of corporate lawyer Sebastian Wiendieck from Latham & Watkins spin-off Schmitz & Partner. Others, such as Hengeler and Noerr, have instead chosen to operate dedicated China practices from within Germany. Gleiss, which until November 2011 worked in alliance with Herbert Smith, also established a China desk in 2010. Most of the major international firms present in Germany have at least one office in China. Many have threein Beijing, Shanghai, and Hong Kong.
"Chinese companies have been looking at Germany for years, but it's now really beginning to gain momentum," says Beiten Burkhardt's Björn Etgen, who, after 17 years in China, will return to Germany later this year to focus more on inbound investment by Chinese clients. "Germany has lots of companies with advanced technology, many of which are up for sale, and the Chinese have also become more sophisticated international buyers. It's an exciting time."