Demand for China's construction machinery industry will take a long time. At this time, high-level debt mergers and acquisitions may still be risky in the industry reshuffle.

On July 2, Zero2IPO Research Center released a set of M&A data from Chinese companies. In the 422 cases of mergers and acquisitions completed in the Chinese market in the first half of 2012, the machinery manufacturing industry took the lead and completed 50 mergers and acquisitions, accounting for 11.8% of the total.

This year, the acquisition of China's construction machinery giants followed. Weichai Group acquired Ferretti, Sany Heavy Industries acquired Putzmeister in Germany, Liugong acquired Polish HSW, and XCMG is also in talks with Shi Weiying, the world's second-largest maker of concrete machinery.

The acquisition of China's construction machinery giants has risen, especially with overseas acquisitions. On the one hand, the European debt crisis has brought the opportunity for the target companies to lower valuations. On the other hand, it also reflects the desire of the Chinese construction machinery industry for core technologies and the expansion of overseas markets. Demand.

However, if an M&A decision made in response to an external crisis is accompanied by a high level of debt, its underlying risks must not be ignored. Take the Purchasing of Putzmeister as an example. In 2008, affected by the global financial crisis, Putzmeister's sales and earnings fell, and its revenue was only 450 million euros. It was the first loss in half a century. After the acquisition of Putzmeister, Sany Heavy Industry will obtain the global distribution and after-sales service channels established by Putzmeister in the past 52 years, which will enable Sany Heavy Industries to improve its global market layout. At the same time, Sany Heavy Industry has also obtained Putzmeister's brand and advanced technology.

However, the financial crisis hit and Putzmeister also incurred huge debts. In addition to paying 324 million euros in acquisition funds, Sany Heavy Industry still needs to bear its huge debts. Some hidden debts or financial problems may even exceed the pre-acquisition estimate. There have been industry commentators who said that the acquisition of Sanyi's "snaking elephants" is not as cost-effective as it seems.

Since 2011, the days of construction machinery industry have not been better. As the growth rate of real estate and infrastructure investment continued to fall, the downstream demand for various types of construction machinery products shrank sharply, and room funds tightened. In order to win customers in the fierce competition, construction machinery companies have adopted a low down payment, and even zero down payment sales model aggressive marketing. This kind of overdraft sales strategy has now begun to expose risks. The receivables and bad and doubtful debts of construction machinery manufacturers have increased significantly, financial risks have increased, and the company’s own cash flow has been under tremendous pressure.

According to statistics, the total amount of accounts receivable of the top eight listed engineering machinery companies in the first quarter of this year was 58.374 billion yuan, an increase of 41.5% over the end of 2011. The total net cash flow generated from the operating activities of listed companies dropped from 9.656 billion yuan in 2010 to a net outflow of 2.814 billion yuan last year, far below the net profit of 23.012 billion yuan.

At present, infrastructure investment, such as railways, began to show signs of shrinking. Some people think optimistically that the machinery industry may be looming ahead. However, this round of investment is no longer possible to restore prosperity in the past, and the demand for the entire construction machinery industry will take longer. At this time, the high level of debt mergers and acquisitions may still be subject to self-risk risk in the industry reshuffle.