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“The Great Unwind” — Jim Zukin’s Masterly Analysis of Global Financial Crisis & Opportunities for Chinese Companies to Benefit Through M&A

Ming Dynasty

Readers of this blog will know I’m a big fan of Jim Zukin, a founding partner of the investment bank Houlihan, Lokey, Howard and Zukin. We met again for lunch last week, in Los Angeles. 

I’ve had the pleasure of meeting, and befriending, quite a few smart, and highly successful businessmen and entrepreneurs. It’s probably been the most rewarding part of my career. But, even among such pretty stellar company, Jim Zukin stands out. I’m truly awestruck – which is not a quality I often exhibit — by his intellect, his charisma, his business savvy, his warmth and humor, his love for his family, his clear and incisive thinking on the largest issues of our time. 

Jim is also much, much better at investment banking than I will ever be. I tend to be somewhat stubborn and used to being in charge. But, Jim’s judgment as an investment banker is so much more thoroughgoing than my own, that he is one of the very few people I’ve known who, metaphorically,  I would follow unquestionably into battle. Like a good junior officer, I would,  “Salute, shut up, and do what I was told.” 

Jim shares with me a deep affection for China, and a great delight in doing business there. He spotted big potential opportunities for his firm in China several years ago, and personally traveled there frequently to get Houlihan Lokey’s office started and on a solid footing, which is where it is today. Jim is one of those people who seems to know more about more things than should be possible, let alone for a guy who’s also occupied with “minor” tasks like staying very close to his five kids and grandchild, while helping to run the thriving global investment bank he founded. 

Among the things Jim understands well (better than anyone I’ve run across) the remarkable moment in financial history we’re now living through – the US is struggling to rebuild its banking sector and recover from a serious credit crisis and recession, while China is awash in liquidity. Most experts look at this and see just one dimension – that China’s government will continue to use its massive foreign exchange reserves to buy US government debt, thereby providing some additional stability to US interest rates and the dollar. 

Jim Zukin sees beyond this – indeed well beyond the current horizon —  to another important aspect of the financial symbiosis between the US and China. Chinese companies, as Jim sees it,  now have the scale, the ambition, the growth potential and the financial resources, to acquire assets in the US. This could have transformational effects for the Chinese companies able to acquire businesses in the US, and no less of an impact on parts of the ailing US industrial base. China could, and should, become a buyer of quality Middle Market companies in the US. There are good reasons why: because these US assets will help the Chinese firm accelerate its growth,  improve distribution and customer base in the US, upgrade technology. One other reason: US Middle Market companies are comparatively cheap, at the current valuation multiples (often around 5x)  and dollar-renminbi exchange rate. 

Jim sees this opportunity earlier and more clearly than most of us. He does so, in part,  because he holds more substantive knowledge and insight about the US, China and the financial tsunami that has changed the world over the last year. He condensed some of this knowledge and insight into a Powerpoint called “The Great Unwind and Its Impact”. 

I recommend it as essential reading, for anyone who wants to understand better the current financial crisis and some longer-term impacts on China and the US.  There’s a large amount to chew on in Jim’s report, not just the section on China. It shows a breadth of understanding that help explain why Jim was able to build a perennially successful investment banking firm, as well as perhaps the only one that’s come through the current financial crisis stronger than ever. 

You can view it here:

http://www.scribd.com/doc/15194564/The-Great-Unwind-and-Its-Impact-By-Jim-Zukin

 

 

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