Last year saw record levels of activity for China M&A, both in terms of deal values and the volume of transactions, said PwC on Thursday in Hong Kong. The growth in the number of transactions was largely driven by financial buyer activity (+38%) and a 142% jump in outbound M&A. Both categories reached new record highs.
In value terms, China outbound M&A grew by an astounding 246% - nearly 3.5 times the previous record set at the end of 2015. There were 51 outbound transactions valued at over US$1 billion – more than double the previous record.
“The growth in large outbound deals is offset to some extent by a decline in domestic and inbound strategic M&A,” says David Brown, PwC China and Hong Kong Transaction Services Leader. “Domestic and inbound deals valued at over US$1 billion almost halved from 68 in 2015 to 36 in 2016. But this is partly because domestic strategic buyers were looking overseas more for their acquisition targets.”
In terms of deal value by industry sector in the domestic market, M&A in real estate grew strongly to reach new highs. This helped offset declines in technology and financial services, which both came off strong peaks in 2015.
M&A activity driven by financial buyers built on very strong growth in 2015 to hit new records in 2016 – up 38% by volume and 23% by value to US$229 billion. ‘Big Asset Management’ (‘BAM’) investors with ample capital dominated the largest transactions. They include corporate and SOE investment arms, financial institutions and government-backed funds.
Financial buyers’ involvement in outbound M&A continues to grow extremely strongly – more than doubling in 2016 to over US$38 billion. VC deals also maintained their trajectory – the VC investment market in China is now six times larger than it was 4-5 years ago.
“As in recent years, we see Chinese companies acquiring overseas know-how and brands to bring back to China, as well as looking overseas for inorganic growth,” says Mr Brown. “Privately-owned enterprises have led this charge. They have tripled deal volumes this year and have almost doubled the dollar spend of SOEs – the first time they have overtaken SOEs.”
Looking forward, the report concludes that China M&A in 2017 will track 2016 closely, with perhaps even a small decline. This is partly due to new regulations having a slowing effect on outbound M&A. Foreign currency approval is also proving problematic in some transactions. Regulators will continue to scrutinise sectors that are considered non-strategic or where valuations have become very high, such as entertainment.
However, the report argues that outbound investment that is considered to be strategic in nature will continue to be encouraged. The other drivers for this activity will remain in place over the medium to long term. Consequently, PwC believes that outbound M&A will continue to reach new records in 2018.