Machine giants boost M&A to find alternatives to weakening local conditions

BEIJING/CHANGSHA - Sany Heavy Industry Co Ltd, China's largest construction equipment group, will buy a leading German machinery producer as the company seeks to expand globally amid slower growth for the domestic construction industry.

The company is to spend 324 million euros ($427.4 million) to buy Putzmeister Holding GmbH, based in Germany.

Sany made the deal along with Citic PE Advisors, a private equity fund, which will control 10 percent of the German company.

Sany announced the transaction, its first overseas deal, in a statement to the Shanghai Stock Exchange on Monday.

"The cooperation is good for Sany to improve its research ability and international marketing," Xiang Wenbo, president of the company, told a news conference on Tuesday.

Sany will gain access to all of the German company's patents, as well as its distribution and service networks, Xiang said.

Chinese machinery manufacturers have been stepping up their overseas merger and acquisition activity as the domestic housing boom slows. The lethargic US economic recovery and sovereign debt crisis in Europe have also made their peers in developed markets ideal buying targets.

Zoomlion Heavy Industry Science and Technology Development Co, Sany's domestic rival, said on Monday it had won approval to build a plant in the US.

Liugong Machinery Co Ltd, another machinery giant, bought a division of Polish heavy equipment company Huta Stalowa Wola SA in December.

Putzmeister is the leading brand in the concrete machinery market, and the acquisition is a good way for Sany to upgrade its technology and brand, Li Xiaoguang, an analyst with SWS Research Co Ltd, said in a research note on Tuesday.

"Sany's market share has been increasing in China, but growth has slowed ... due to the tightening policy of macro economy," Li wrote.

Sany gets most of its profits from China, and exports generate less than 5 percent of total sales.

About half of Putzmeister's sales come from Europe, with 20 percent from the US. It is also the leading concrete pump manufacturer in India.

"Sany has found the golden key to the market in Europe, America and India by buying Putzmeister," Liu Rong, an analyst with China Merchants Securities Co Ltd, wrote in report on Tuesday. The share of Chinese machinery products is very low in these markets, according to Liu.

After the acquisition, the German company will keep its brand and maintain its own management team, according to Liang Wengen, chairman of Sany.

The deal could pose some risks, however, Liu added.

"The economic recovery in Europe and the US is slow, and profits from these places will hardly contribute much to its business overall," said Liu. "Also, there might be cultural conflicts as a result of the acquisition."