China’s PE/VC Investment Hits New Record in 2016

Despite a reduction in the scale of global PE and VC fundraising and investment, both the funds raised in the Chinese market and China PE and VC-led M&A deal value set a new record in 2016, according to PwC’s China Private Equity/Venture Capital 2016 Review and 2017 Outlook.

Driven by a substantial increasing amount of RMB fund-raising, US$72.51 billion was raised by China PE and VC in 2016, creating a new historical record– a 49% growth over 2015, while the scale of global PE and VC fund raising fell to US$336 billion in 2016 from $347 billion in 2015.

The RMB fund valued at $54.89 billion showed a 177% growth over the last year. From 2012 to 2015, the ratio of non RMB funds and RMB funds generally remained stable. Nonetheless, the portion of RMB funds surged from 40% to 76% in 2016.

“Traditional PE and VC fundraising was dominated by RMB for the first time, with a plethora of mid-small RMB funds raising money for domestic investing and A-share related activities and exits,” says Ni Qing, PwC China Private Equity Group Funds Audit Partner.

As global trading value fell 38%, total China PE and VC-led M&A deal value continued growing steadily to reach US$ 223 billion, accounting for 73% of global PE/VC deal values in 2016. PE M&A deals set a new record in 2016 by increasing 66% to US$ 222.9 billion.

Venture capitalists has increased dramatically from 2012 to 2016. Today, VCs are six times more active in the Chinese market than they were four to five years ago.

Driver of strong growth

“The strong growth was driven by the participation of ‘Big Asset Management’ (BAM) investors who dominated the list of large transactions,” notes Nelson Lou, PwC Beijing Advisory Leader. “Furthermore, Chinese PE/VC funds’ overseas M&A activities have taken off rapidly, becoming a force to be reckoned with, with 2016 M&A deal volume more than doubling that of 2015. Investors pursued overseas assets ‘with a China angle’ and aligned with their growth strategies, while focusing on geographical and currency diversification.”

In terms of deal volume, high technology is still PE funds’ most favored sector in 2016, followed by industry.

In terms of deal value, PE investment in real estate driven by BAM and outbound M&A nearly doubled in 2016. In addition, the consumer sector set a new record. High-tech M&A activity remained brisk, but show signs of slowing down when compared to 2015.

The backlog of projects awaiting exit continue to face challenges. Although IPO exits reached a new height with 165 deals, a 38.7% increase from last year, M&A exit deals fell unexpectedly to the lowest level in four years.

“We expect that fund raising will keep growing in 2017. As the pressure to invest large sums of available funds increases, we expect an increase in PE/VC led M&A activities,” comments Amanda Zhang, PwC China Private Equity Group North China Leader.

“PE/VC funds will continue to face exit challenges. Though the valuation may go down, exit through A share market are expected to be accelerated. Overseas listings will also increase, especially in high tech industry.” 

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