Chinese M&A

China hungrier than ever for global assets

China's outbound M&A activity reached a new record in the first half, putting it on track for a strong year, says PwC.
David Brown, PwC
David Brown, PwC

Chinese companies have been buying assets around the globe for a few years now, and their hunger shows no sign of slowing. Despite market volatility and an uncertain global economic outlook, outbound merger and acquisition activity by China’s cash-rich buyers reached a new record in the first half of this year.

Indeed, M&A activity increased 14% in the first six months of 2011, compared to the same period last year. There were 107 outbound transactions in the first half of the year, and if this strong level of activity carries through for the remainder of the year, 2011 will be a record year for Chinese M&A activity abroad, said PricewaterhouseCoopers (PwC).

Chinese buyers’ interest has also grown into a wider array of industries, such as machinery and equipment makers, and consumer-related companies from the ever-popular natural resources sector. In fact, M&A in the industrial and consumer segments nearly doubled in the first half of 2011 compared to the same period in 2010.

“Although there were fewer larger sized transactions in the first half of 2011, we expect a number of big deals to be announced in the second half of the year. China is in the driver’s seat of global M&A, and there is no sign that interest in outbound M&A is waning,” said David Brown, leader of private equity group at PwC Greater China.

As production of Chinese goods continues to move up the value chain and the country transitions to a consumer-led economy, it is no surprise that Chinese acquirers are keen to buy more industrial know-how, technology and brands, Brown said.

Four of the top 10 deals during the first half of 2011 were in the industrial and technology sectors, according to Dealogic.

Shanghai Pharmaceuticals, China’s second-largest drug distributor, yesterday became the latest Chinese company to announce plans for a big acquisition. The company’s chairman Lu Mingfang said on a conference call yesterday that the group is planning a “major” acquisition in the coming months, and the target companies might be mid-sized drug makers in the US or Europe.

Shanghai Pharma raised $1.97 billion from an initial public offering in Hong Kong in May.

Earlier this month, ICBC, China’s biggest bank, said it had struck a deal to buy a controlling interest in Standard Bank Argentina as well as some other related assets in the Latin American country for $600 million.

Although there are now a greater variety of companies venturing overseas, natural resources remain a big part of China’s outbound acquisition story. China National Chemical Corp signed the biggest deal when it paid $2 billion for the silicon-related operations of Norway’s Elkem. Followed by China Petroleum & Chemical’s $1.7 billion acquisition of a 15% stake in Australia Pacific LNG.

However, diversification away from investments in natural resources has led to a noticeable increase in European investments, with 30 announced transactions in the first half of 2011, which exceeded the total into Europe for all of 2010, according to PwC.

Even so, Asia remains the top destination for outbound M&A overall, with 33 deals in the region, and resources are still the main attraction for Chinese buyers abroad, followed by industrials, energy and power, and technology.

According to PwC, the private equity (PE) industry is fast emerging as a key provider of growth capital to China’s privately owned SMEs. With some degree of fiscal tightening in China and volatility in equity markets, the role of PE and venture capital funds in this sector of the economy is set to grow. In the first half of 2011, there was a 31% increase in the number of PE transactions with a value of more than $10 million, the firm said.

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