Private Equity Average Deal Size in China at Highest Level Since 2008

There was a surge in deal value in China in 2013 to US$35 billion, according to PwC’s latest private equity (PE) market analysis. This was despite fundraising being tightened due to the IPO embargo in the country. In addition, the average deal size for 2013 reached its highest level since 2008.


"China’s PE market developed strongly in 2013 and picked up throughout the year," says David Brown, PwC China and Hong Kong Transaction Services Leader. "There were also breakthroughs on the regulatory front with reforms in fundraising, investment, administration and exits. These changes have made the PE market more stable. Therefore, we are optimistic for 2014 and expect fundraising to rebound with the IPO markets re-opened."


China focused funds made up only 7% of global PE fundraising in 2013, a decline for the second straight year. While the global markets rebounded, China markets were slowed down by its domestic IPO embargo. Fundraising for the China market dominated Asian PE with around US$312 billion raised from 2003 to 2013.


In 2013, renminbi PE fundraising declined for the second straight year as the domestic Chinese PE industry continued to consolidate, while US dollar denominated fundraising has been consistently healthy over the same period. "Although renminbi PE fundraising declined in monetary terms, its share of the market increased to 77% in 2013, up by 12% compared to 2012," adds Brown.


The number of new investments recovered in the second half of the year, with 205 transactions, an increase of 27% compared to the first half. On a full year basis, there was a surge compared to 2012 in deal value to US$ 35 billion. The average deal size for 2013 was around US$ 95.4 million, reaching its highest level since 2008. Meanwhile, the technology, media and telecommunications (TMT) and healthcare sectors grew in importance for PE investors.


Growth capital deals declined as the PE industry shifted focus towards PIPE and, increasingly, buy-out transactions. PIPE almost doubled, adding up to 132 in 2013 from 68 in 2012. Buy-out transactions were also up by 61% compared to 2012 levels. But, growth capital deals and PIPE were still dominant in terms of deal value, amounting to 89% of the total investment.


From November 2012 through to December 2013, China experienced its longest IPO embargo in the A Share’s history. Therefore all IPOs were split between the US and Hong Kong capital markets in 2013. There were 35 PE/VC backed IPOs by Chinese companies, 43% of the figure in the US, the first time the US figure has exceeded China since 2008. It was the third straight year of decline for PE exits, and 2013 was the first year that IPO was not the dominant exit-route. However, PE-backed IPOs showed some recovery in the second half of 2013 off a very low base. The rebound continued in January and February 2014, with the IPO markets re-opened.


"PE exits will rebound strongly as IPO markets re-open, we expect to see quite a number of PE backed IPOs in 2014," concludes Brown. "Furthermore, we also expect to see more secondary (PE to PE) activity."


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