Op-Ed Contributors

'Buy American' gets a whole new meaning

By Leonard P. Goldberger (China Daily)
Updated: 2010-05-25 07:55

The recent growling back and forth between China and the United States leaves no doubt that we are in the year of the tiger. These political frictions - which, hopefully, will soon be resolved by responsible government actions on both sides - should not distract from a unique historic economic opportunity: a robust marketplace for financially distressed US businesses and assets. Indeed, while the US is currently one of the most vibrant merger and acquisition (M&A) marketplaces, it may be all too easily overlooked, or even deemed inaccessible, by Chinese investors.

In the wake of the global economic crisis, the marketplace for financially distressed assets has essentially become the epicenter of M&A activity in the US. Trends in China and the US both have intersected to create a unique historical moment that should yield extensive investment opportunities: Chinese investors are flush with capital, coupled with a demand for overseas investments, and there is an abundant supply of financially distressed assets currently in, or headed to, US bankruptcy courts.

It should be no surprise to Chinese investors that the US distressed marketplace offers bargain-priced assets that are being sold for prices far below historic valuations. Moreover, there is at present an abundant supply of financially distressed businesses and assets - all for sale one way or another in US bankruptcy courts. This is especially so for financially distressed US real estate. According to a recent report by the US Congressional Oversight Panel, about $1.4 trillion of distressed real estate loans will come due in the next four years.

In addition, the US distressed marketplace offers stability. Consistent with the predictability of the US legal system, acquiring distressed assets out of US bankruptcy courts provides investors with economic certainty and legal finality. Acquisitions of assets "free and clear" of all claims, liens and interests out of bankruptcy (which is the established norm) provides unparalleled investor protection from past problems.

The choices of investment opportunities are quite varied and extensive, and include financially distressed hotels, golf courses, shopping centers, oil, gas and coal energy companies, auto parts manufacturing firms, waste management and environmental services companies, biotech and pharmaceutical companies, steel companies, computer and information technology companies, retail and consumer brand companies, shipping and distribution companies, and solar and renewable energy companies.

Chinese investors can acquire strategic business assets and, indeed, entire companies, out of US bankruptcy cases. For example, in the Vetrix Corporation bankruptcy case, a Chinese supplier in the electric battery business was able to acquire for only about $5 million ($1.75 million cash and the balance in assumption of debt) certain strategic patent-protected "next generation" technology for electric vehicles, essential tooling, and a dealer and distribution network in North America and Europe. That had previously cost the bankrupt company over $200 million to develop.

There are three steps that Chinese investors should follow to take advantage of these bargain American assets:

First, Chinese investors must become more informed about the processes in the US distressed marketplace, especially about how transactions are accomplished in US bankruptcy courts. There are educational conferences and programs for Chinese investors to attend on this subject. With this greater understanding of the US distressed marketplace comes a greater recognition of investment opportunities, and a greater willingness to take the next step, having become more comfortable in balancing the risks against the opportunities.