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China serves up some heebie-jeebies yet again, this time directed towards the global market for construction machinery. Sany Heavy, the country’s biggest maker of cool-sounding machines such as concrete pumps, excavators and cranes, is to buy 90 per cent of German concrete pump-maker Putzmeister for €324m.
Sure, Putzmeister is small fry, with only a 10th of the revenues of Sany. But the deal is significant because it is Sany’s first overseas acquisition and will quadruple its foreign sales overnight. Just 4 per cent of Sany’s revenues came from outside China in the first half of last year. By contrast, more than four-fifths of Putzmeister’s sales come from countries outside of China, Morgan Stanley estimates. Sany gets access to Putzmeister’s global distribution and after-sales service channels and there are potential synergies by supplying its parts to Putzmeister’s assembly plants.
With a listing in Shanghai and just a third of its shares freely floating, it is tricky for investors to cash in on Sany’s global ambitions yet (it is also mulling a Hong Kong listing). Instead, they should worry more about potential damage to market leaders Caterpillar and Komatsu. A slowdown in construction growth in China has sharpened Sany’s need for overseas growth. It has already built plants in the US, Brazil, India and Germany. And Chinese heavy equipment makers such as Zoomlion, XCMG and LiuGong have been boosting sales in Brazil, in particular.
Caterpillar’s revenues may be seven times that of Sany’s at $60bn last year, but three quarters of them come from outside Asia. With cheaper manufacturing costs at home, Sany benefits from operating margins double those of Caterpillar’s. It can therefore afford to be much more aggressive in expanding its share abroad. The construction machinery land-grab is on.
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