Losing dominance in Asia-Pacific M&A

Chinese outbound M&A deal activity represented more than 40 percent of deals in the Asia-Pacific region from 2015-2017, but this share dropped dramatically in the first half of 2018, Bain & Company says in its latest China outbound M&A report.

Chinese companies use overseas mergers and acquisitions to help them win at home or gain leadership in selected industries overseas.

As Chinese companies become more experienced at outbound M&A, they gain sophistication in critical capabilities, such as developing a clear investment thesis, due diligence skills and merger integration.

"In China, as elsewhere, winning outbound acquirers will be those that make the necessary adjustments to evolve their M&A strategy along with a global market that never stops changing,” said Zhou Hao, partner with Bain & Company and head of its China M&A operations.

“China’s outbound boom will only continue as companies look to capture new capabilities that strengthen their domestic position, while also growing overseas for a leadership position in industries in which they can gain a competitive edge."

Companies with more frequent and large deals did much better in terms of total shareholder return, according to Bain's analysis of the performance of more than 700 Chinese companies that made acquisitions from 2013 to 2017.

The number of Chinese outbound deals for full ownership from 2016 to 2017 more than doubled compared to those made during 2013 and 2015, and the number of deals for 50 percent to 100 percent ownership more than trebled.

Another big advance involves the level of post-acquisition control Chinese companies used to assume that they would need to take full control of the management of an acquired business — now, executives take a more sophisticated approach.

The number of private enterprises acquiring companies overseas is growing much faster than acquisitions made by state-owned enterprises.

Bain also estimate an increase in deals aimed at capturing new capabilities required to grow businesses at home and for accessing global markets.