Earlier this Summer, Beijing Capital Group (BCG) announced the outright purchase of Transpacific New Zealand (TPI NZ), the country’s largest waste management firm, for 5.1 billion yuan (£500 million). It is the biggest ever overseas acquisition of an environmental firm by a Chinese company.
BCG chief Liu Xiaoguang has not previously been active in China’s environmental industry. The property mogul was more likely to be found discussing China’s house prices with friends and fellow real estate kingpins Ren Zhiqiang, Feng Lun and Pan Shiyi.
BCG is a state-owned infrastructure and property developer, managed by Beijing’s State-Owned Assets Supervision and Administration Commission. It’s major investments include the Beijing-Hong Kong-Macau expressway, the Beijing-Tianjin Expressway, Beijing’s 4th and 5th subway lines, and a swathe of real estate projects in Beijing totalling more than four million square meters. Its infrastructure holdings also include more than 100 water supply and treatment facilities around the country.
It is making plans to expand into the environmental protection sector and, speaking to reporters after the deal was announced, Liu said that the acquisition "immediately" makes BCG China’s second largest waste management firm.
Liu had five requirements for any waste management acquisition. The target firm had to be large, able to handle over 2,000 tonnes of waste daily; vertically-integrated; own intellectual property; have customers able to pay their bills; and have potential for expansion.
BCG’s global hunt for a match started in February 2013. After a search including Greece, Spain, Malaysia and Portugal Liu formed his own view of waste management companies: overseas firms have better technology than those in China; are better managed; and like energy and mineral assets are a limited resource – so BCG had to move quickly.
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But the firms examined were either too small to satisfy BCG’s appetite, or their government customers were pressed for cash and could not be relied upon. Then on October 29, 2013, the US TPI Group announced its New Zealand waste management business, TPI NZ, was up for sale.
New Zealand’s biggest waste management company, TPI NZ covers the entire waste management cycle. It has a national customer-facing transportation network; a system for transferring and sorting various types of waste - domestic, medical, construction; as well as landfill, methane power generation and waste liquids disposal facilities. It even designs its own specialised vehicles. Chinese analysts have described it as a fully-developed industrial chain. Assets include 1,100 employees, 800 vehicles, 29 waste depots and 5 landfill sites.
TPI NZ saw turnover of NZ$369 billion (1.96 billion yuan) and profits of NZ$107 (570 million yuan) in 2013. However its parent company, the TPI Group, is still feeling the effects of the financial crisis and is being forced to sell off assets to deal with huge debts.
The company was just to Liu’s taste – but that meant it would have other suitors salivating too.
International private equity houses KKR and the Carlyle Group had TPI NZ in their sights, as did a number of New Zealand firms. KKR, one of the most successful investors in financial history, is known as “the King of the Leveraged Buyout.”
Liu told reporters that despite BCG’s offer not being the highest, it won because of its background. “The other bidders were all funds making commercial investments. They’d have just sold the company on. We’re experienced industrialists and we’re not selling.”
The local media claimed the price paid for TPI NZ was too low, complaining the company had been sold off at a discount.
Will the acquisition bring access to new technology?
BCG wants to start using New Zealand’s waste management technology in China as soon as possible. These include methods for collecting methane from landfill sites through specially designed pipes; collecting and rendering harmless leachate from toxic waste; and reducing the foul odours from waste management facilities via special sprays. These technologies are one of the reasons Liu is so happy with his purchase.
China currently faces huge environmental challenges, and this means huge demand for environmental technology. Liu views the idea that developed nations will transfer such technology to China as wishful thinking: “The only real way to acquire that technology is to buy the companies that own it.”
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Figures from Solidwaste.com.cn show that China’s waste management industry is still in its early stages, accounting for 13.7% of total investment in the environmental protection sector. In developed nations it accounts for over 50% of investment and output. In terms of development, waste management is at least 3 to 5 years behind the water treatment industry.
Xue Tao, chair of GT Consulting, said the overseas acquisitions show the waste management industry has reached a certain level of development. Recent years have seen better management and stronger financing at these companies and the industry is starting to restructure, with powerful domestic firms coming to the fore.
But BCG’s over-emphasis on technology has industry insiders worried. Xue Tao said that there is a quick turnover of environmental technology, and overseas technology may not suit China – so overseas acquisitions for the sake of technology may be riskier. In fact, China does not currently lag behind in waste management technology – the problems lie in implementation and operational management. The latter in particular should be an advantage for SOEs entering the industry.
Lin Junda, an analyst with industry association China Greentech Initiative, drew a comparison with wind power. Technology-driven acquisitions in that sector were initially quite common, but as the industry matured the focus shifted to wind farm management and ongoing operations.
“Obtaining technology is an essential stage, but it’s not everything,” said Lin. “There’s a whole system that goes with it.”
This article was originally published in the Southern Weekend