China businesses’ desire for cross-border acquisitions has increased significantly, according to the latest Grant Thornton International Business Report 2013 (IBR).
Among China businesses with acquisition desire, 47% of businesses show interest in cross-border transactions, which is at its highest level since the IBR first asked this question in 2008.
According to the result of the survey, 61% of businesses believe accessing geographical markets remains the primary motivation to participate in M&A for China businesses.
Businesses also put emphasis on using M&A to acquire new technology or established brands (58%) and build scale (54%). Businesses rely less on M&A to lower operation cost with percentage of 40%.
M&A is still viewed as the quickest and most effective way to gain a footprint and build scale in new geographies. Retained earnings (36%) and bank finance (28%) are still the two mostly used financing channels for China businesses.
Despite of the gloomy IPO market, businesses’ willingness for IPO (22%) is higher than 18% of last year, representing a growing appetite for listing. On the other hand, businesses’ willingness for raising money from private equity dropped from 17% in last year to 13%.
China businesses still prefer the traditional financing channel, although the financial reform has been implemented gradually in Wenzhou and Guangzhou Pearl River delta, to broaden the financing channel for small and medium businesses.
“China businesses are now better prepared for cross border M&A after years of high growth and more businesses will seek growth from cross border transactions when time is right," says Xu Hua, CEO of Grant Thornton. "Businesses should be on high alert and turn to service institutions including investment banks, accounting firms, law firms to conduct due diligence to adverse risks."
Xu adds that government should accelerate financial reform and deregulation, develop bond market, stock market and asset securitization, increase non-bank financial institutions and financing medium, in order to help businesses to expand financing channels except for loans from banks.
The survey reveals that businesses from Latin America (13%) are most upbeat about the potential to sell their business and 19% of Brazilian business owners expect to sell their business in the next three years.
Respondents from countries across mainland Europe (8%) are generally less forthcoming or expectant to sell their business. However, Finland businesses (26%) are the most positive regarding a future sale of their business.
Owners of UK and Irish businesses (12%) remain some of the most open about the potential to sell their business. Among the respondents from the United States, 7% show inclination to sell the business.
Countries from which businesses are the most reluctant to exit are Thailand (2%), Russia (3.2%) and Japan (4%).
The survey shows that there are differences in businesses’ exit route from various countries. UK businesses (44%) are more inclined to sell to a trade buyer, South African businesses (32%) see their most likely exit route being to management and 40% of Brazilian companies expect most to exit via private equity.