In 2013, Susan Endersbe, president and owner of R.E. Uptegraff in the town of Scottdale, Pennsylvania, was looking for a buyer for her business. Established in 1926, R.E. Uptegraff is a well-known and respected manufacturer of transformers for the utility and industrial markets. The business was sound, with an excellent reputation for quality products and innovative designs. It had been a family business for three generations, but now it was time to find a new owner.
She contacted Blue Water Growth to discuss the idea of finding a buyer from China.
Strong interest, higher prices
Chinese firms are extremely interested in purchasing small and midsized businesses in the U.S. They look for strong brands, distribution, local manufacturing and capable leadership, and are often willing to pay a higher price than domestic buyers.
From July through September 2014, Chinese firms spent $3.1 billion on overseas foreign direct investments in the U.S. While they are tough negotiators, many Chinese firms desire a cash transaction rather than the multiyear earn-out models so often preferred by domestic buyers.
Expand your options with Chinese buyers
For U.S. businesses, it may be worth thinking about opening up the investor pool to include Chinese buyers. If so, consider the following:
- Take the long view for greatest value. China buyers are methodical, careful and prefer to build relationships first. Only after they have established trust will they undertake a thorough analysis of the deal. The Chinese go slowly due to an earnest desire to understand the transaction to make a prudent decision. Any smart investor would do the same.
- Don’t just search in well-known Chinese cities. Many people expect buyers to be clustered in cities like Shanghai or Beijing, but there are more than 170 cities in China with populations over 1 million. These cities are home to thousands of companies eager to invest in U.S. operations.
- Business fit is important; cultural fit is critical. When deciding on a potential buyer, consider complementary product lines, similar production methods and quality measures as well as the culture of the buying firm. The best candidates are those who have some experience with global business.
- Chinese buyers need assistance to learn about U.S. business practices. The Chinese buyer often will have heard horror stories about legal and tax complexities that may give them pause. Guiding the buyers to competent advisers they can engage with independently is an important part of the process.
So, what happened with R.E. Uptegraff? On Sept. 30, Blue Water Growth announced that Shenda Electric Group of Jiangshan, China, acquired the business. Shenda Electric has plans to expand both the physical plant and jobs over the next four years, all while keeping a long-term commitment to the city of Scottdale.
China firms won’t always be the answer to investors looking to exit but in the near future they may often be the best option for the business owner, the employees and the local community.
