Chinese Companies Target Asia for Outbound M&A--KPMG Survey

Asia will be the most popular region for China outbound investment over the next three years, according to a recent KPMG survey of 156 Chinese executives.


The survey found that 67% of respondents planned to target acquisitions in Asia, compared to 37% for Europe and 35% for North America.


Key findings from the "World Class Aspirations: The Perception and The Reality of China Outbound Investment" report indicate that of the companies that have done or plan to do outbound investment, only 15% of respondents indicated they had no plans to do M&A. Size matters, as the survey notes that large companies with annual revenues of more than RMB 1 billion are more inclined to target Europe (50%) compared with those that have less than RMB 1 billion in revenues (24%).


"Some Chinese exporters are targeting 'secondary' consumer markets such as Southeast Asia for their products and they see M&A as a viable entry strategy. Some are also increasingly adopting a 2+1 approach whereby they will move some of their production to lower-cost markets in the region," says Jeremy Fearnley, Head of M&A, KPMG in Hong Kong.


The global economic downturn has done little to halt the momentum of overseas investments by China. Chinese organisations completed 60 deals in developed markets during 2009, with a further 39 deals in the first half of 2010, according to KPMG analysis.


Many Chinese companies see outbound M&A as part of an overall strategy to transform themselves into global organisations. "Building global profile and reputation" was one of the most popular reasons for outbound investment, cited by 41% of the survey respondents.


The importance of having a clear strategy is highlighted, with "failure to clearly define investment strategy and objectives" ranking as the most important mistake that a company can make, according to 60% of respondents. When asked to cite the specific objectives of their outbound investment strategy, the respondents pointed to achieving geographic growth (59%) followed by a drive to build their global profile and reputation (41%).


"As China is extremely capital rich, overseas targets are keen to be either acquired or enter into joint ventures with Chinese companies. They see this as a good strategy to gain access to the Chinese market. This is happening across sectors, for industrials, consumer markets and technology," notes Fearnley.


Nearly half of respondents of the recent survey (48%) said they are likely to embark on an outbound M&A deal, where they take majority ownership. In addition, 43% of respondents indicated they would invest abroad in a joint venture where they have a majority stake.





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