After spending less than 400 million HK dollars acquiring Aquascutum, a 161-year British luxury brand as well-known as Burberry, YGM Trading Ltd (YGM) is widely believed to make a great deal. However, for Fu Sing Yam, executive director of YGM, signing the agreement of acquisition only takes several seconds. The focus is placed on the careful distribution before and after acquisition, which is just like a battle. It is a tough task to develop a century old brand.
　　Fu Sing Yam has 30 years of experiences in clothes retail, wholesale, market promotion and purchasing. Prior to the acquisition of Aquascutum, he also witnessed YGM acquiring Hang Ten, Guy Laroche and so on.
　　 Prequel to the Acquisition
　　For YGM, the acquisition is not the simple relation between seller and buyer. Before the acquisition, YGM had “pre-operation” for the brand to be acquired.
　　Early in 2009, YGM spent 173.7 million HK dollars buying the ownership of Aquascutum’s logo in Asia. By 2011, YGM had opened 160 sales spots (125 of them in mainland China), contributing to the major part of Aquascutum’s global sales.
　　“We have been operating Aquascutum for almost 13 years. We first worked as its agent and helped it open the door of the Chinese market. We knew its profitability and thus we made the deal when the opportunity comes,” Fu Sing Yam said. “If we did not expand in advance, we would not know the overall operation of this brand in the past 13 years. We could not open this market at proper time either. If we acquire the brand because it was operated well by others, we may not have success because we have to spend some time familiarizing its operating pattern.”
　　On May 10, YGM officially signed the acquisition agreement with Aquascutum and its executives. The Hong Kongbased company spent 15 million pounds taking the ownership of the apparel retail and franchised business of Aquascutum in UK. The assets related with these businesses and the intellectual property of Aquascutum around the globe (Asia excluded).
　　Any deal in the business world cannot be called perfect if it has no profits. Whether the acquisition can bring the company profits is an important factor YGM pays heavy attention to.
　　“From the area of Greater China, Aquascutum can bring the income of 600-700 million yuan each year, taking 57%-60% of YGM’s income,” Fu Sing Yam said.
　　The financial data also served as a good proof. From last September to this March, YGM’s total income increased by 25.7% to 76.9 million U.S. dollars thanks to the high-end brands it has. Its profits after tax also increased by 23.8% to 14.3 million U.S. dollars.
　　YGM is a “proficient veteran in the cross-border acquisition.
　　In 1995, YGM acquired the U.S. leisure clothing brand Hang Ten. In 2004, YGM acquired the French clothes brand Guy Laroche, which pushed this Hong Kong company under the limelight of the fashion world.
　　YGM was the earliest clothes company that brought the international brands into mainland China. Pierre Cardin, Valentino, Aquascutum and Ashworth were the brands it introduced into China.
　　Aquascutum was established in 1951 and earned its fame by making water proof coats for the army. Many royal nobles and celebrities are loyal customers of this brand. On April 18, 2012, Aquascutum announced its bankruptcy. However, even though it has collapsed, it still has a great influence in Europe and the United States.
　　“We are attracted by its profitability. In addition, the fame and history of the Aquascutum brand own unprecedented significance as well,” Fu Sing Yam said. “Of course, old brands have their own problems. The structure is too old.” In his opinion, YGM could handle this problem by tacking the economic issues and affairs in local methods through local companies.
　　 Change or Preservation?
　　Aquascutum does not only establish stores in the large shopping malls of the first-tier cities in China, it also has stores in the top shopping malls of China’s second- and third-tier cities. Dust coats are its main products. Its new owner YGM opened 300 stores in Asia, 130 of which are located in China.
　　Presently, many Chinese companies have great capital strength. Capital is no longer the problem for them in acquiring international luxury brands. But how to manipulate this brand after acquisition is where the test is.
　　“The number of stores will not see big changes and we will see improvement in quality,” Fu Sing Yam said. “We will make improvement to our products according to the requirements of China’s local market, such as the length, color and depth of the coat.”
　　Under YGM’s leadership, Aquascutum is to continuously develop its business in the UK and Europe, expand its global sales network and diversify the product category. For example, sports clothes, clothes for children, and accessories might come out in the future and this British brand might launch the global logo franchise and wholesale business.
　　“We will attach more importance to the design and retain the design center in the UK,” Fu Sing Yam said. The biggest advantage at present comes from the peak of Asian economy in which YGM takes the primary opportunity since it has owned the Asian market of Aquascutum. “In the 1970s-80s, international brands usually give priority to the European and American markets, through which they drove the global market. Now things made a U-turn as we consider the Asian market as the main momentum to push the global sales forward.”
　　In truth, after the outbreak of the European debt crisis, many European enterprises met unprecedented difficult situations. Some Chinese enterprises began to covet on the established brands in Europe, hoping to embark on the high-speed railway of luxury products in emerging markets. But in Fu Sing Yam’s opinion, “Chinese enterprises should not be overactive and keep a stable development pace. They need to make out product lines suiting themselves based on their needs.”
　　 It’s Not the Time Yet
　　YGM is widely admired by its Chinese peers because of the acquisition. Many Chinese companies have been planning to acquire foreign brands for long. Some of them have already taken actions but very few of them saw the success.
　　Wang Qiang is one of them. As the board chairman of a Shandong-based jewelry company, Wang Qiang committed himself to acquiring the foreign luxury brands in the past two years. He had negotiated with three European brands but none of them ended with a closed deal due to various reasons.
　　His first target is an Italian jewelry brand but the conditions Italians proposed were unacceptable for them. The price was very high and the Italians wanted him to retain all the Italian employees if the deal was made.
　　The second potential partner is a jewelry brand in France. This time he was rejected because the owner thought that this jewelry brand would be disgraced under his leadership. The owner of this brand paid several visits to Wang Qiang’s company before giving out their final rejection.
　　Then, Wang Qiang decided not to be limited by the jewelry brand. At the end of last year, he began to talk with a French champagne brand. This time both parties reached agreements in purchasing price and following operation and development. This greatly delighted Wang Qiang. But when he was going to sign the contract, the French company began to worry whether Wang Qiang has the ability to run this brand well in China. Therefore the deal was suspended.
　　The other Chinese bosses may not go through the same frustrating history of acquisition. But they encountered similar results. But this did not put out the collective urge of Chinese bosses in acquiring top foreign brands. They are still looking for good opportunities.
　　
　　The roaring luxury market in China explains why so many Chinese bosses covet top foreign brands. Chen Zhilong, operating manager of France-based A&H Luxury Group experienced the fervency of Chinese entrepreneurs in buying foreign brands. Apart from the aforementioned Wang Qiang, many Chinese bosses contacted Chen Zhilong, hoping to make use of his personal relations in the luxury industry to pave ways for their acquisitions.
　　“In the luxury market, Chinese local consumers hold the mindset that they only buy big and established brands. Apart from the cultural factors, Chinese commodities which have been cheap for long stopped Chinese consumers having a positive conception of the homemade high end products,” Chen Zhilong said.
　　In addition, Chen Zhilong associated the motivation of acquisitions with corporate operations. For example, in recent two years, jewelry enterprises met big challenges. In order to seek new development opportunities, many of them seek for the opportunities of acquiring European brands which is an easy way to get rid of the current depression. Though there are more investors planning to build real Chinese local luxury brands compared with several years ago, most of the recent acquisitions are, in Chen Zhilong’s opinion, not based on this ambition.
　　“These are necessary options in the changing market situation. On one hand, the depressive European economy makes many brands think of selling themselves for their survival. On the other hand, Chinese consumers’ admiration for European brands is undeniable as a cultural phenomenon. Things cannot be changed within a short while when it comes to culture. In this market situation, acquiring European brands is undoubtedly following the trend with which they can improve the sales and earn enough profits,” Chen Zhilong said.
　　From 2008, Gao Zhen, executive partner of Mandarin Capital could receive the appeals about consulting about acquiring European luxury brands from Chinese companies every week. As a senior executive of the investment fund, Gao Zhen seeks proper foreign luxury brands as the partners. Then she exposed these opportunities to potential Chinese entrepreneurs. This seems to be an easy case but no deal has been finished by now.
　　Then why is it so hard for Chinese entrepreneurs to acquire foreign luxury brands?
　　In Chen Zhilong’s opinion, Chinese companies need to prepare for three aspects if they want to buy European luxury brands. Firstly, they need a clear and practical development path. Since many European luxury brands are run by families and have strong affinity to their heritage, they attach importance to not only the price but also the continuity of brand fame. This is clearly seen in the business dispute between Hermes and Louis Vuitton.
　　Secondly, Chinese companies must have real specialists proficient in acquisitions provide guidance when it comes to the management. Presently the overseas acquisitions are hot items and many consultancy and even advertising companies thus turn themselves into companies related with overseas acquisition consultancy. But they are weak in handling complicated problems; thus finding these companies for consultancy service means nothing but more trouble.
　　“Lastly, Chinese companies must know how to control the financial risk well. Acquiring a luxury brand is only the start of the huge investment and they have to wait a while for the profits,” Chen Zhilong emphasized.
　　In Gao Zhen’s opinion, it is not the right time for Chinese bosses to acquire European luxury brands. When asked for advises by Chinese entrepreneurs, she usually asked them three questions. One: will you be inclusive for a foreigner and like everything of foreignerd have? Two: can you treat them equally without thinking either too highly or two lowly of them? Three: are you willing to share your profits with him?
　　In addition, Gao Zhen will investigate how the bosses treat their teams and whether they give their teams certain incentives. This concerns whether the corporate leaders can lead their teams after the acquisitions and encourage them to make better products.
　　But pitifully, Gao Zhen failed to find a person with enough capability and charisma to do this among the elite enterprises in China after years’ search, let alone capable talents to re-cultivate the brand culture after acquisitions despite the cultural differences.
　　“But can we have these talents in the future? I believe we are able to do it,” Gao Zhen said.