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Sunday, November 8, 
8:19 am

Why the Chinese didn't buy Chrysler

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With Chinese companies aggressively looking to expand beyond their borders and U.S. automotive assets trading at distressed valuations, it is surprising to many that the Chinese did not emerge as a buyer of Chrysler LLC or any of the bankrupt auto parts makers.

The answer, according to bankers speaking at an auto industry restructuring finance summit in Dearborn, Mich., is that the Chinese markets have not yet matured to a level that buying in the U.S. makes sense.

Michael E. Gibbons, founder and senior managing director of Cleveland-based midmarket boutique firm Brown Gibbons Lang & Co., said that while he has seen some perspective Chinese buyers poking around at U.S. assets — particularly at bankruptcy auctions — there is a level of sophistication lacking for now that is keeping deals from getting done.

Chinese buyers, according to Gibbons, tend to price companies not based on Ebitda or other metrics common in the U.S. but rather based on net asset value. Simply put, they are not offering enough to be taken seriously in most competitive auctions.

“An Americanization of dealmaking has to happen,” Gibbons said.

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Still, deals are getting done at a rate of about 550 annually in the sector over the last 10 years, according to PricewaterhouseCoopers data. And for the second straight day, dealmaking talk at the summit centered on the profound impact private equity has had on the auto industry.

Justin Mirro, a managing director at Jefferies & Co., said “the universe of financial buyers has exploded” in recent years. A decade ago there were perhaps a dozen financial firms who might have been interested in doing an automotive deal. Today he is working with a list of 200 financial buyers. “This, more than anything, is driving the M&A market,” he said.

Whether that has changed in recent weeks due to troubles in the credit markets seems to depend on where you sit in the market. While large deals have been impacted, Gibbons said that he has not seen much disruption to deals priced in his normal range of $25 million to $750 million. —Lou Whiteman

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