M&A Liquidity Events Held Steady In 2018 - Study

Tom Burroughes

20 February 2019

Merger and acquisition activity in China - liquidity events minting new high net worth individuals and enriching existing ones - was broadly unchanged last year at $678 billion. Record private equity activity offset a 23 per cent slump in outbound M&A, according to .

Deal values were below the 2016 peak level, although volumes have remained relatively steady over the last three years, the organisation said. PwC expects a slower first half in 2019, as outbound activities continue to decline, with a number of uncertainties affecting the market, including pricing expectations.

China’s outbound M&A fell for the third straight year from 2016 records, dropping to less than half of those highs over two years, according to the firm’s 2018 review and 2019 outlook.

“A mixture of headwinds and uncertainties have framed the landscape for transactions,” David Brown, PwC deals leader for Asia-Pacific, said.

“Appetite for deals is still there but there have been shifts in focus behind the scenes. State-owned enterprises are making fewer overseas deals, focusing instead on internal restructuring and the domestic market and private-owned enterprises outspent their state-owned counterparts for the third year running. Notably, financial buyers continued to demonstrate their ability to fund deals, and now account for 40 per cent of outbound deal volume,” Brown said.

Looking at geographical regions, Europe continued to attract the highest dollar amounts from China, with $50.9 billion of transactions. Asia ($15.2 billion) and the US ($13.2 billion) followed as the second and third largest destinations for Chinese outbound M&A transactions.

“From the perspective of industrial sectors, technology and consumer related deals have been attracting the lion’s share of activity, which is in line with government policy to encourage the introduction of foreign technologies, brands and consumer goods into the China market,” Chris Chan, PwC China and Hong Kong financial services M&A leader, said.

“The search for technology and brands means that – given the drop off in US deals - developed markets in Europe as well as some parts of Asia are now the biggest destination for Chinese buyers in terms of deal volume,” Chan added.

Private equity high
The value of private equity investment activity hit a new high in 2018 at $222 billon, marginally ahead of the previous peak in 2016. This new record reflects the large supply of available capital meeting substantial demand for funding in the private sector, bolstered by several hot tech and fintech mega-deals. These sectors were particularly active in the year, and included a $14 billion funding round - the highest ever by a private company globally - by Ant Financial.

Numbers of private equity-backed initial public offerings and trade sales both slid in 2018, with exit activities dropping to the lowest level in the past five years. The US and Hong Kong stock markets appeared more attractive, however, with both landing more private equity-backed IPOs in 2018 than in each of the prior four years.

Looking ahead
“We do expect to see a recovery in outbound deals and some strong PE activity in the last six to eight months of the year as well as some uptick in foreign inbound transactions, spurred by further opening up in specific sectors such as automotive, financial services and technology,” PwC’s Brown said.