China M&A activity hit a new record in the six months to June 2016, growing to US$412.5 billion. This is up 13% by volume and 8% by value compared to the second half of 2015, itself a record at that time.
PwC’s M&A Mid-year Review & Outlook for 2016 finds that outbound M&A was the main driver of this growth. It increased to more in six months than the previous two years combined, surging almost fourfold to $134 billion. Even after deducting ChemChina’s $43 billion. bid for Syngenta – the biggest ever by a Chinese buyer – outbound M&A grew by 161% compared to 2H 2015.
The number (volume) of outbound deals in 1H 2016 was 29% higher than in the whole of 2015, with 24 deals larger than US$1 billion. – more in six months than in any previous full year. Deal volumes were up across all industry sub-sectors.
“There was a sharp increase in outbound deal activity by both state-owned and private-owned enterprises in the first half of the year,” says David Brown, PwC China and Hong Kong Transaction Services Leader. “But while POEs have dominated in terms of deal volume for some time, they have now overtaken SOEs in terms of deal value as well. POEs accounted for two-thirds of the 20 largest deals.”
While financial buyers’ overall deal volume increased modestly, there was a sharp increase in their purchases of overseas assets. At $16 billion, outbound deals made up nearly 20% of all Chinese financial buyer activity – by far the highest proportion yet seen.
Financial investors continued to focus on funding the tech sector: more than one-third of the 20 largest deals involved either a tech buyer or target. Real estate and Financial Services (including fintech) were also popular.
“The dramatic growth in outbound deals is partly due to the rise of alternative financial investors,” says Brown. “These include the investment arms of large corporates and SOEs, insurance companies and State-backed funds of various types. We expect them to play an increasingly significant role, as there is a huge supply of investible capital in China.”
While trade sales by PE investors were healthy in 1H 2016 – matching their record high in 2H 2014 – PE-backed IPOs remained subdued. PE investors prefer A-share listings due to the higher valuations, but they have struggled to get access to those markets.
Looking forward, the report expects domestic strategic activity to continue to be robust as the economy matures and restructures. A-share listed companies will take advantage of their strong valuations relative to overseas targets and will seek growth by acquisition, as organic growth slows further. PwC does not expect a quick recovery in foreign inbound M&A due to political and economic uncertainties in the major markets.