M&A: China Dominates Outbound Acquisitions

 

An uncertain environment in 2016 caused by the UK’s referendum on European Union (EU) membership and US elections are political upheavals that have negatively impacted M&A activity, setting global M&A back 26.6% during H1 2016 with deals worth US$ 1.32tn compared to US$ 1.81tn in H1 2015, and down 66.8% versus US$ 3.98tn in H2 2015.

Following a peak in activity seen in 2015, M&A targeting the Asia-Pacific region has dropped back to 2014 levels. A total of 1,591 deals worth US$ 307.4bn were announced during H1 2016, which although representing a 29.7% decrease by value compared to H1 2015, still reached the second highest H1 on Mergermarket record (since 2001).

China’s spending spree adding pressure to US and European bidders in auction processes is set to increase - the Chinese government selects which company it wants to bid for a non-Asian firm, but it will relax these regulations and allow multiple bidders if the foreign company is worth more than US$2bn.

China has made four of its largest outbound acquisitions on Mergermarket record in 2016, buying quality over quantity – Chem China/Syngnenta (US$45.9bn), Tencent Holdings/Supercell Oy (84.3% for US$8.6bn), Anbang Insurance Group/Strategic Hotels & Resort (US$6.5bn) and Tianjin Tianhai Investment/Ingam Micro (US$6.1bn).

The country has already broken all annual totals for European (US$75.4bn) and US (US$32.9bn) acquisitions, up 156.6% and 179.4%, respectively from 2015.

Investment destination of choice

In an attempt to decrease reliance on their home market, Chinese dealmakers continue to seek industrial technologies abroad. Europe has become their investment destination of choice, with 78 deals worth US$ 75.4bn accounting for 64.6% of total outbound (non Asia-Pac) deal value.

Chinese companies are willing to pay a higher price for quality European assets, with average premia paid for a European listed target during H1 reaching 23.5%, up from 13.5% in 2015.

Taiwan has experienced an uptick in M&A deal value due to its highly attractive semi-conductor assets. The top four deals targeting the country in H1 2016 all took place within the semi-conductor space, including the highest valued deal of Q2: Netherlands-based ASML Holding’s acquisition of Hermes Microvision for US$2.8bn.

With eight deals worth US$7.3bn announced, M&A targeting the country’s renowned Technology sector accounted for 87.0% of total deal value targeting the country, up 87.3% compared to FY 2015 (19 deals, US$3.9bn) to reach its highest half-year deal value on record.

Consolidation amongst Chinese companies has driven M&A activity within Asia-Pacific (excl. Japan)'s Media sector, resulting in an all- time high H1 deal value, with 49 deals worth US$ 16.0bn announced. As a result, deal value reached its second largest half-year total on record following H2 2015 (US$19.3bn).

Chinese domestic media dealmaking (24 deals, US$12.5bn) accounted for 78.4% of the total value, as companies seek to compete on the global stage. This deal value was heavily influenced by Wanda Cinema Line’s US$5.7bn acquisition of Wanda Media, allowing the company to expand its reach into the film production sector. 

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