Chinese outbound M&A activity increased year on year to $37.8 billion in 2012, a 26% increase, says Beijing-based A Capital, a private equity fund that invests in mid-sized European companies aiming to grow their business in China.
It compiles the Dragon Index, measuring total China overseas direct investment, including M&A and greenfield transactions, divided by China’s gross domestic product.
On that basis, the index rose 14% during 2012. Foreign direct investment into China declined by 4%, says A Capital, although it remains a bigger flow overall.
Within M&A, which accounts for 49% of the outbound flow, nearly 60% of volumes went to resources, with Africa receiving the majority of such investments.
Notable deals from 2012 include Shandong Iron and Steel Group buying a 25% stake in South Africa-based African Minerals for $1.5 billion and Cnooc paying the same amount for a 33% stake in Uganda’s Tullow Oil.
There is a growing shift toward minority investments, which now account for 58% of all M&A deals, up from 43% in 2011, according to A Capital.
“This new trend is confirmed by statements of senior Chinese government and business leaders supporting minority investments as more prudent, accepted and efficient,” says Andre Loesekrug-Pietri, A Capital’s chief executive.
For example, China Petrochemical paid $4.8 billion for a 30% stake in Petrogal Brasil, while Sinopec secured a $2.5 billion, 33% stake in US-based Devon Energy.
Most of this activity is driven by state-owned enterprises, although there are exceptions, such as Dalian Wanda Group’s $2.6 billion acquisition of US movie-theatre group AMC Entertainment.
Across total overseas direct investment, Europe remains the biggest recipient. Some transactions into Europe were big, such as China Three Gorges buying a 21% stake in Portugal’s Energias de Portgual for $3.5 billion, or Sinopec’s $1.5 billion acquisition of a 49% stake in the UK’s Talisman Energy.
But most of the deals into Europe are not related to resources, and represent mid-sized deals meant to get into materials, construction and other areas important to China’s urbanisation story. European valuations remain modest and there are fewer political obstacles in sensitive sectors. More private firms transact in Europe as well.
Deals into North America also grew in 2012, however — and Cnooc’s $17 billion acquisition of Canada’s Nexen, which formally closed in February, will tip the scales towards that region for 2013.
Asian countries have recently fallen away, because there are not enough large deals on offer. In 2011, Asia was the second biggest destination of Chinese investment, but in 2012 it was fourth, behind North America and South America. The biggest declines were in Hong Kong and Singapore. The single biggest deal in Asia took place in Kazakhstan, Chengdong Investment Corporation’s $425 million acquisition of a stake in Polyus Gold. There have not been any deals of size in East Asia, Southeast Asia or India.
A Capital also tracks the biggest Chinese investors. Its list does not exclude the project financing activity of China Development Bank or China Export-Import Bank, which would dwarf any single investor. The biggest single investors include China Petrochemical ($4.8 billion into Petrogral Brasil), Sinopec ($4 billion to Devon Energy and Talisman), China Three Gorges ($3.8 billion to Energias de Portugal and a Hong Kong-based energy developer), Dalian Wanda ($2.6 billion for AMC) and China Investment Corporation ($2.2 billion across four deals in the services sector, in Europe and South Africa).
