Qi-Tech - a Chinese Technology

QI-TECH: A Chinese Technology

Company for Sale

Course:         MBA

Date:                 November 21, 2015

Overview

        Created in 1994 through a joint venture of Indivers and QQMF, QI-TECH’s beginnings were not auspice.  Faced with an installation backlog, labour unrest, marketing inefficiencies and a minimal product line, QI-TECH’s first year of operations produced only 12 coordinate measurement machines (CCM).  Management’s focus for 1995 and 1996 was on administration and marketing.  Both areas presented challenges (technological as well as cultural), but progress was being made.  In 1997, QI-TECH increased the product line from two to seven; contracts had increased by 170% for 23.8 million (RMB) in sales, and market share in China was 23%.

        In 1997, Roger Kollbrunner was hired by Indivers to oversee Indivers’ interest in QI-TECH.  Kollbrunner’s belief is that Indivers should withdraw from QI-TECH and he began to seek buyers.  From a potential pool of three (Zeiss, Excell and Brown & Sharpe), Kollbrunner determined that Brown & Sharpe were the best candidates for making a deal.

Seller’s Objectives

The objective of the seller (Indivers) is to find a partner with a strong network in CMM technology who has a reliable foundation and network in this business field.  A partner with CMM knowledge would help QI-TECH grow into the future.  Indivers is seeking a 20% annual return on their investment in QI-TECH.  Furthermore, Indivers is seeking 1-2 times the book value price of their shares in their company.

QI-TECH needs a new strategic business partner and as such has to make a good decision to ensure that change in ownership does not decrease their success in the CMM market.  Therefore, finding a partner who has expertise within the CCM technology is critical.  Another concern for QI-TECH is that they must select a partner who understands the cultural differences which can exist between business groups.  QI-TECH also has to focus on the valuation (%) of Indivers shares but also to choose a partner with existing CMM technology.  QI-TECH is the only CCM company currently available for sale in Asia, they are well situated to find a strategic partner.

QQMF wants to continue company growth into the future.  However, they need to align with a company that will support technology, market, and access to new forms of capital.  QQMF also has to find new ways to work with, or around, the Chinese government rules and regulations, as QI-TECH is backed by the Chinese government, and changes in government policy have decreased QQMF profit margins in the past.

Valuation

                Indivers obviously wants to reach the maximum return for the sale of their 50% stake in QI-TECH.  They have provided projections of QI-TECH based on their current market share, their belief that the market is projected to expand, that they will be able to significantly increase export sales, their increasing gross profit margins and revenue growth, their strong products, and that they are targeting a strategic buyer.  Indivers would like a 20% annualized return on investment (ROI) and believe that the CCM market will grow 15% a year for the next 10 years.