November 07, 2013
Drew Bernstein, Co-Managing Partner of Marcum Bernstein & Pinchuk, Interviewed in The Metropolitan Corporate Counsel Article "Chinese Acquirers 'Stepping Up' Their Game"
The Editor interviews Drew Bernstein, Co-Managing Partner, Marcum Bernstein & Pinchuk.
Editor: Tell us a little bit about your professional background.
Bernstein: I spent most of my professional life in international business, the first 20 years principally in Europe, commuting back and forth, with a few years each in the Czech Republic and in Israel. One of my real estate clients, a war refugee who spoke 11 languages, became my mentor. In 2001, I took my first trip to China, and today I commute monthly. I’ve visited about 125 cities across China, and my wife is Chinese. My partner, Neil Pinchuk, and I joined Marcum three years ago. We basically run the China practice, one of the largest in the country, with offices in New York, Beijing, Shanghai, Guangzhou and Hangzhou, and 75 bilingual (or better) professionals in China. We represent almost 40 companies. Most people would agree it’s exciting work, but the 15-hour flights, 12-hour time difference and Chinese-language documents are not for everyone.
Editor: Where does outbound M&A stand in China today?
Bernstein: Overall, 2013 may be a record year for outbound acquisitions by Chinese companies, with over $43 billion of deals announced so far this year. This is being driven by a unique constellation of circumstances. Obviously, the Chinese have accumulated a significant amount of foreign reserves, and the government is encouraging investors to move beyond holding U.S. treasuries and to begin taking bites of real assets. You also have a select group composed of the so-called state-owned-enterprises, or SOEs, which are well-connected companies with access to very low-cost, long-term financing. And you have domestic uncertainty with overcapacity already at very high levels in many industries and a shortage of large-scale, traditional investment projects.
Editor: I understand Marcum recently held an investor conference in Beijing in September. Any key takeaways?
Bernstein: We had more than 400 people from over 60 companies (including 17 of the largest companies in China) and over 125 investment firms. There is a lot of interest in China right now. It is the second-largest economy in the world, poised to be number one.
There were two very interesting takeaways from our conference. First, Chinese stocks are at their lowest levels right now – undervalued by 60 to 80 percent relative to international comparable companies – generating a lot of interest for investors. The interest level is high, but so is the level of scrutiny. Of course, from an IPO standpoint, the last two years have been dismal. But that now appears to be turning around: recently, very strong IPO performances by Qunar and 58.com suggest that investors will step up if the company has the right credentials.
Second, cross-border business is very high on everybody’s list, but it continues to be difficult to define. In China, our firm has broadened in many ways to accommodate its complexities. We represent companies in the United States that are looking at making Chinese acquisitions; we work with wealthy Chinese who participate in EB-5 investment programs (the Chinese account for over 40 percent of all EB-5 visas); and we are becoming heavily involved in bankruptcies, somewhat surprisingly. Every time a U.S. company in certain sectors – apparel, technology, manufacturing, toys – goes bankrupt, Chinese creditors are involved. They have acquired some very well-known brands and interesting assets through these liquidations.
Editor: Are there particular sectors that are of interest to Chinese acquirers?
Bernstein: Until a few years ago, we saw deals focused largely on natural resources, which made sense given the high demand for raw materials in China and the low execution risk involved. But the deals we are seeing today have a very different character. They include very high-profile real estate deals, for example, Fosun’s agreement to buy Chase Manhattan Plaza for $750 million and Shuanghui International’s $4.7 billion purchase of Smithfield Foods. Evidently, some of the stronger players are looking to step up. And they are being smarter about avoiding deals that will meet with significant national security hurdles.
What’s getting much less attention but is potentially more interesting is that recently some of the very large, successful tech companies, especially Tencent and Baidu, are openly and actively looking to take strategic stakes in tech companies in the United States. The Chinese are making a number of acquisitions in Silicon Valley right now; they seem to be recognizing China’s need to move beyond its highly successful, essentially copycat business model.