Deal focus: AGIC targets Sino-German industrial synergies

KraussMaffei has been the subject of Chinese interest before. Three years ago, when Madison Capital put the Germany-based manufacturer of machinery used to make plastics and rubber up for sale, several Asian parties looked at it. One Chinese group reportedly got into exclusive negotiations. But Onex Corp. bought the asset for EUR568 million (then $731 million), including EUR276 million in equity.

Now KraussMaffei has changed hands once again, and this time it will enter Chinese ownership. AGIC Capital, a private equity firm that focuses on China-Europe cross-border investments, China National Chemical Corporation (ChemChina) and Guoxin International Investment Corp. have agreed to buy KraussMaffei from Onex for an enterprise valuation of EUR925 million ($1.01 billion).

It represents a first deal for AGIC and Henry Cai, the firm's chairman, sees it as a justification of his investment thesis. Cai, who was previously executive chairman of corporate finance for Asia Pacific at Deutsche Bank, established AGIC last year to target mid-market technology and manufacturing businesses in Germany-speaking parts of Europe. The idea is that AGIC can support the expansion of these companies in China.

"Cross-border is a huge opportunity," Cai says. "Germany has advanced technology and China has a huge market; GDP growth is slow in Germany and China is at the low end of the industrial technology spectrum. There are positive synergies between China and the German-speaking regions. We see a big industrial revolution coming in intelligent manufacturing and that is why we set up this fund."

AGIC reached a first close of $550 million in October with CIC as an anchor investor. The firm's website indicates it has $1 billion in total commitments. AGIC makes investments of $20-100 million, targeting minority and control positions in firms specializing in intelligent production and automation, medical equipment and healthcare technologies, and high-end systems and components.

Given the size of the KraussMaffei deal - the company had revenue of EUR1.1 billion in 2014 - there were always going to be other parties involved. Cai says he has known the chairman of ChemChina, Jianxin Ren, for 17 years and there are frequent exchanges between the state-owned player and AGIC. He describes the KraussMaffei investors as a consortium of equal partners. ChemChina has strength locally, and AGIC is well positioned to interact with the Germany-based management thanks to its presence in Munich.

"A lot of Chinese companies are interested in going to Germany but it's not easy," Cai adds. "First, there is a different culture and investment philosophy. Then you have to deal with German companies' concerns about patent protection and whether the Chinese investor is going to shut all the plants in Germany. We know how to get access in Germany, this is unique knowhow and IP."

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