Chinese M&A Climbs To New Heights - PwC

Tom Burroughes

13 January 2017

There were record volumes and values for merger and acquisitions affecting Chinese firms last year, figures from show, a position that will cheer wealth managers who hope M&A will produce a fresh crop of newly-enriched business owners.

The growth in the number of transactions was largely driven by financial buyer activity (up by 38 per cent) and a 142 per cent surge in outbound M&A. Both categories reached record highs, PwC said in a report yesterday.

In value terms, Chinese outbound M&A grew by 246 per cent, which is almost 3.5 times the previous record set at the end of 2015. There were 51 outbound transactions valued at over $1 billion - more than double the previous record, PwC said.

“The growth in large outbound deals is offset to some extent by a decline in domestic and inbound strategic M&A,” said David Brown, PwC China and Hong Kong transaction services leader. “Domestic and inbound deals valued at over $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."

M&A, along with initial public offerings and the exercise of share options, is a type of liquidity event that wealth managers track for potential clients; organisations such as , for example, have provided data exclusively to this publication.

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 hit new records in 2016 – up 38 per cent by volume and 23 per cent by value to $229 billion. “Big asset management” investors with ample capital dominated the largest transactions, the report said. They include corporate and state-owned enterprise investment arms, financial institutions and government-backed funds.

Financial buyers’ involvement in outbound M&A continued to grow “extremely strongly”, PwC said, and more than doubled in 2016 to more than $38 billion. Venture capital deals also maintained their trajectory - the venture capital investment market in China is now six times larger than it was four-to-five 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,” Brown said. “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."

PwC expects that China M&A in 2017 will track 2016 closely, perhaps with 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, it added.