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Survey: Chinese companies keen on foreign buys

By Jiang Wei (China Daily)
Updated: 2009-03-06 07:54

China's outbound merger and acquisition (M&A) activity is likely to increase in the next 12 months despite the global economic downturn, according to a recent survey by the Royal Bank of Scotland (RBS).

Related readings:  Chinese firms will increase overseas M&A: RBS survey  China all alone in Asian M&A growth  Global M&A falls in 2008, 5-year growth ends  China's M&A activity down 47%

The report said 63 percent of the respondents expect China's level of outbound M&A activity to increase, while only 21 percent said the level would drop.

The survey was conducted by independent intelligence firm Mergermarket and covered 106 respondents from the Chinese mainland and Hong Kong, including Chinese companies that have undertaken overseas M&As, financial advisory professionals, and private equity firms.

"The survey confirms what we see in the market as Chinese companies are still eager to expand through global acquisitions. This is part of a continuation of a longer term trend and the current difficult global economic environment presents many such opportunities," said Michael Bracken, managing director, Corporate Finance Group Asia at RBS.

The report said corporate respondents, who have been directly involved in a Chinese outbound transaction, are more bullish on market prospects this year. Sixty-five to 70 percent of the respondents believe that Chinese outbound M&A activity will increase this year, compared to just 27 percent of corporate respondents that have not undertaken an outbound transaction.

Fifty-seven percent of the respondents said they believe that the ability of Chinese bidders to finance overseas bids has been affected by the credit crunch while the other 43 percent think that deal financing has not been impacted.

"Private equity respondents are more bearish than their corporate counterparts on the ability of Chinese bidders to finance outbound transactions in light of the current financial crisis," the report said. Just 20 percent of private equity firms predict that bidders' financing abilities will be unaffected by the crisis, as opposed to 44 percent and 47 percent of advisory and corporate respondents respectively.

Acquiring market share abroad is cited by 52 percent of respondents as the main reason why a Chinese corporate would undertake a foreign acquisition, while 47 percent also felt that acquiring technology or expertise would be a primary factor.

The country's direct outbound investment is predicted to grow 13.2 percent year-on-year to $59 billion this year, according to the National Development and Reform Commission. M&As have become an increasingly important part of Chinese businesses' overseas investment.

In 2008, China's outbound M&A transaction volume increased by 2.5 times to $42.3 billion with 57 announced deals, including Chinalco's $14 billion bid with Alco for a 12 percent stake in Rio Tinto. In terms of value, China's outbound M&A volume accounted for 24.1 percent of last year's total Asia outbound investment, according to Mergermarket.