The stereotype of Chinese mergers and acquisitions is the country’s business leaders spend so long discussing and talking about investing but only commit when the putative partner falls on hard times and the price becomes distressed.
Such value investing is arguably more logical then shelling out for a ‘growth’ stock at much higher multiples – or as news provider Financial Times argued this week: “There is a reason that growth investing does not have a hero like Warren Buffett. It’s stupid.”
China-based automobile parts maker Wanxiang Group’s decision to effectively pick up control of some of America’s highest-profile clean-tech deals this year, A123 and GreatPoint Energy, certainly are not ‘stupid’ deals.
An American administration paralysed by the failure of Solyndra having provided bumper amounts of loans to the bankrupt solar panel producer has turned off the Department of Energy loans tap to others, leaving A123, its corporate venturing portfolio company Fisker, and others in a funding hole.
Given these companies have seen large amounts of public and private funding to then see another investor swoop in to potential reap the rewards is a challenging prospect. The same difficulties have affected other disruptive technologies that ate up too much cash before it could find a business model or efficiency/reliability to meet customer demands, including Plastic Logic in the UK (probably Europe’s largest venture-backed company but now effectively owned by the Russian state – see our Global Corporate Venturing case study in related content below).
The challenge facing most governments is they rely on markets to be efficient at later stages while trying to pump-prime and step in at earlier stages. But as behavioural finance has comprehensively shown, markets are not very efficient at all and the game can be rigged by players with different aims and rulebooks.
The question taxpayers, voters and employees will start to ask is whether government strategies are priming an innovation capacity in areas that a country, ie its companies primarily, have no interest or capacity to commercialise whether through corporate venturing and then acquisitions? If the answer is yes, then is the state happy to be carrion or krill to feed the larger beings?