China's outbound M&As fall 18% in H1, PwC reveals

Chinese companies are set to extend slowdown in outbound M&A activities although deals in other sectors will remain steady, PwC says.

The value of China’s mergers and acquisitions fell 18 percent in the first half of the year, while the volume of transactions grew slightly, according to a private report.

The slowdown is expected to continue in the second half of the year as Chinese companies reduced their M&A activities although deals in other areas will remain steady, PwC said in a report released today.

The total value of M&As shed 18 percent in the first six months to US$348 billion.

The value of deals fell across the four main sub-sectors of M&A — domestic strategic buyers, foreign strategic buyers, private equity deals and outbound acquisitions by the mainland.

The sharpest drop was seen in outbound M&As, which have fallen for four consecutive half-year periods since the record highs of 2016, said Liu Yan, PE leader for the mainland and Hong Kong at PwC.

The strategic and outbound sectors also posted a drop in the number of deals. However, the number of deals in the financial sector jumped 28 percent in the first half of the year from the second half of 2017.

Europe displaced Asia as the primary outbound destination by value. However, two deals — China Three Gorges’ US$10.8 billion acquisition of Energias de Portugal and Geely’s US$9 billion investment in Daimler — took up 80 percent of the eurozone total, according to the report.

PwC said that falling investment into the US accounted for a significant proportion of the overall decline in China outbound M&As from its peak in the first half of 2016.

Domestically, the value of strategic M&As shed 27 percent as there were 24 mega-deals (valued at over US$1 billion) compared to 32 in the second half of 2017.

“To some extent the slowdown reflects the Chinese government’s commitment to deleveraging, which has had some impact on M&As, particularly among listed companies,” the report said.

By sectors, strategic acquisitions in the industrial, metal and chemical sectors hit record highs, said Cai Ling, corporate finance partner of PwC China. 

“The technology and finance sectors accounted for more than half of the deals for financial buyers, though the US$14 billion fundraising for Ant Financial had a big impact on the finance sector in this period,” Cai said.

For the second half of the year, PwC sees M&As to ease further with slower outbound M&As, while domestic strategic investments, foreign strategic investments and private equity deals are likely to stay steady.

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