Chines outbound mergers and acquisitions (M&A) deal value declined to US$80.7 billion year-to-date, down 43% from US$141.6 billion during the same period last year, as the Chinese government’s efforts to curb capital outflow continue to pressure China’s outbound deal-making.
Despite the significant drop in outbound M&A, the 2017 year-to-date number is still significantly higher than 2015, when US$48.86 billion worth of outbound M&A deals were inked, according to a new report issued by Acuris, formerly Mergermarket Group, today.
This is in line with the Chinese government’s efforts to curb excessive outbound deal-making, which are seen as compounding systemic risks of the domestic economy. Increasing protectionism in markets such as the United States also hindered the number of M&A transactions, said the report.
Industrials, chemicals, technology, and pharmaceuticals sectors made up more than half of China’s total outbound deals, as Chinese companies bought assets that will help upgrade the country’s manufacturing and industrial industry.
"As always, Chinese companies and advisors will still be able to find creative ways to get deals across the line," said Hamilton Matthews, CEO of Acuris. "One strategy we’ve seen recently is for private companies to partner with state-owned enterprises (SOEs) on acquisitions, on the assumption that a deal done together with an SOE will have an easier time getting regulatory approval."
"We expect to see more of these tie-ups in the future, provided that the private companies can prove that their acquisitions make strong strategic sense and are not just an attempt to get money out of China," Matthews added.
On the other hand, interest in China-based companies has been increasing among overseas acquirers. China’s inbound M&A transaction values jumped by a third to US$26.2 billion year-to-date. Foreign companies were most interested in China’s industrials and chemicals sector, followed by technology enterprises.
China’s M&A landscape, especially outbound acquisitions, will likely remain muted for the rest of the year as the government continues to impose disciplined deal-making overseas.
Chinese companies will continue to seek acquisition opportunities, but will reserve their efforts for transactions that are business critical and serving the national interest. Moreover, deal execution will continue to be challenging due to regulatory and financing hurdles.
Domestic M&A will pick up going forward, especially as the government continues to promote reform of its SOEs, said the report.