By Antoine Gara at Forbes
Nearly three decades ago, Japanese corporations flooded the United States with a boom of takeover deals, much of it focused on prime U.S. real estate. They snapped up properties like Rockefeller Center and The Plaza Hotel, in addition to Columbia Pictures, causing consternation among those in the U.S. who wondered when, or if, the buying boom would ever end.
“If you don’t want Japan to buy it.. don’t sell it,” Akio Morita, founder ofSony , famously said when bidding for Columbia.
The buying stopped when a 1980s stock market bubble in Japan popped, depleting the dealmaking currency and animal spirits of overseas acquirers. Within years, targets like Rock Center and The Plaza were in the hands of new ownership and a quarter century later, Japanese corporations are still trying to dig out from under the bubble.
Now, it appears there’s a new foreign buyer rushing into U.S. markets and exhibiting similarities to the heady, 1980s Japanese M&A binge.
Chinese corporations have opened 2016 with an unprecedented surge in overseas dealmaking and this frenzy of activity is no coincidence. It comes as China’s currency is in the process of readjusting to account for it slowing economic growth, causing hundreds of billions of dollars in capital outflows. Roughly half a trillion dollars poured out of China in 2015 according to the Institute for International Finance and that pace continues this year.
Capital leaving China has found its way into single and multifamily real estate properties in North America – in addition to financial assets like stocks, bonds and currencies. Now, the money is rushing directly towards large domestic corporations through takeover deals. Just two and a half months into the year, Chinese overseas corporate M&A activity is roughly in line with the $108 billion in outbound M&A conducted all of last year, according to Dealogic.
If Chinese corporates are beginning to exhibit similar symptoms to the Japanese merger mania, a set of deals in the works this weekend cements the comparison.
Anbang Insurance Group, which is run by Deng Xiaoping’s grandson-in-law, is trying to negotiate what looks to be an unprecedented bonanza of real estate acquisitions, targeted at famous U.S. properties. Anbang ponied up $2 billion to buy the Waldorf-Astoria Hotel from Blackstone-controlled Hilton Hotels in late 2014, and the group is back at it with two deals that would increase its buying by many multiples.
The insurer is reportedly offering to buy Strategic Hotels and Resorts (SH&R) — the owner of properties including Essex House and Hotel del Coronado — from Blackstone. That offer comes just months after the ink dried on the PE giant’s $4 billion takeover of SH&R in September. And Anbang is leading a consortium of investors who are challengingMarriott International's MAR -0.45% $12 billion takeover of Starwood Hotels HOT +0.11%, operator of upscale hotel brands including Westin, W Hotels and Le Meridien.
On Monday morning, Starwood said a consortium is offering $76 a share for the hotel operator, an unsolicited deal its board is now weighing. Separately, Marriott International named Anbang as the leader of the investment consortium and characterized the offer as “highly conditional and nonbinding.” It remains committed to its original Starwood offer.
How Anbang’s buying bonanza plays out is unclear.
Marriott is due a $400 million breakup fee if Starwood accepts a competing takeover, and the financial underpinning of this real estate rush is also still uncertain. Still, the 2016 trend of Chinese buying is quickly turning into one of the major stories of the year for Wall Street.
As overall M&A slows from the near $4 trillion in deals cut last year, Chinese buying is heating up. Proposed takeovers are targeting businesses in the U.S ranging from General Electric's GE -0.18% appliances division to crane maker Terex Corporation, and Syngenta in Europe. Surely, more deals are to come.
The question is whether this buying is strategic and will work in the long-run, or these proposed deals will flounder and quickly dissolve, similar to the Japanese deals of the 1980s?
In the automotive sector, Chinese corporate buyers like Geely have succeeded with recognized overseas brands like Volvo. Buying chemicals concerns or heavy equipment manufacturers make sense given China’s still growing industrial economy, as do resource oriented corporate and land acquisitions in agriculture and energy. E-commerce giant Alibaba has quietly snapped up minority stakes in numerous U.S. technology businesses like Lyft, Groupon and Zulily, seeking inroads in the U.S. market and staying afoot of consumer change.
But Anbang’s real estate push raises perhaps the biggest eyebrow.
Unlike Marriott, Anbang has limited experience running a large global hotel operation, and the group’s insurance businesses hold little synergy. By contrast, Marriott’s proposed $72 a share cash and stock deal offered roughly $200 million in annual cost synergies. That hotels are seeking the synergies of consolidation efforts – or contemplating spinning their real estate (as Hilton is) – indicates profit expectations in the industry are beginning to turn.
How Anbang would be able t0 generate deal returns that surpass Marriott or Blackstone is unclear. History tends to repeat itself, and the surging Chinese overseas M&A amid a domestic devaluation rekindles memory of Japan’s bubble-fueled buying of the 1980s.