Over the last decade, foreign companies have become increasingly active in buying prominent US brands. Blame it on the need for tax reform – where foreign tax rates are so favorable, the buyer can fund the purchase almost entirely on the tax savings – or argue that it is simply easier to buy market share than build a brand the old fashioned way – by earning it.
Either way, it is not surprising that China is taking a prominent role with $21B of acquisition targets in 2015. In January 2016, Haier, a global leader in consumer electronics, announced its proposed takeover of GE’s appliance business – valued at $5.4 billion – giving it a substantial position after a decade of trying to buy its way into the U.S. market. In 2005, Haier tried to buy Maytag but Whirlpool emerged the winner and a 2008 attempt to buy the same GE business was forestalled by the global recession.
In the end, things worked out well for GE which, under CEO Jeff Immelt, is divesting itself of its ‘non-core’ consumer holdings to focus on industrial businesses such as aviation and healthcare. In 2014, GE tried to sell its appliance business to Sweden’s Electrolux for $3.3 billion which ran afoul of the U.S. Department of Justice.
A risk for the GE brand.
One of the more interesting aspects of the GE sale is that it agreed to give Haier the rights to use the GE brand on appliances for the next 40 years. That is a long time by any measure and, in my opinion, creates risk for the GE brand. Although a relatively unknown name in the US, Haier already has 5.6 percent market share in the US and a whopping 29.8 percent in China and revenues totaled $32.6 billionworld-wide in 2014.
By all accounts the company is well run by CEO Zhang Ruimin, who has created a culture of quality after reportedly publically smashing 76 faulty refrigerators with a sledge hammer in 1985 to demonstrate a need for higher quality standards. That being said, a lot can happen in the 40-year lease period Haier has on the GE brand and hopefully most Americans will still think of GE as an iconic American brand – and won’t be given any reason to think differently.
Expect to see other American brands that we know and love up for sale to the highest international bidder. We are the land of innovation and brand building; Apple became a global brand leader because of those two factors. Smaller, emerging companies that have created a strong brand name will be acquisition targets. It’s clear the Chinese are smartly using American money from the trade imbalance and are putting it to use to acquire American brands as the most effective way to enter the US market.
The new reality of global business.
But other nations are also flocking to the sale. Over the last few years, InBev of Belgium bought Budweiser, and SABMiller of South Africa swallowed up Miller Brewing. In the technology sector, Broadcom of Irvine, CA, was purchased by Singapore-based Avago Technologies for $37 billion and within short order slashed 700 local jobs. Allergan, another California company, successfully fought off a hostile takeover by Canadian company Valeant Pharmaceuticals only to be acquired months later by Ireland-based Actavis for $70 billion, creating one of the top-ten largest pharmaceutical companies in the world. Ironically, the company was rebranded Allergan, the name of the company that was acquired.
The emerging new reality of global business is that it’s easier and faster to buy an established brand than it is to create one.