Economy

China-related mergers and acquisitions to rebound

By Hu Yuanyuan (China Daily)
Updated: 2010-08-17 08:09

BEIJING - Most China-related merger and acquisition deals have rebounded strongly in the first half of the year, and set the scene for robust activities for the remainder of 2010 and into 2011, accounting firm PricewaterhouseCoopers (PwC) said on Monday.

Chinese outbound merger and acquisition deals for the first six months of 2010 have reached record levels, up by more than 50 percent over the same period last year, PwC said in a report. A total of 99 outbound deals were announced in the first half of this year, continuing a growing trend that began in the first quarter of 2008.

Natural resources are the main industry target for Chinese investors overseas. Fourteen resource deals were announced in the first half, with the largest being Sinopec's $4.7 billion acquisition of a 9 percent stake in Synacrude from ConocoPhillips.

Another notable investment was China Investment Corporation's double investment in PennWest Energy, aggregated to $1.2 billion in total.

Though Australia is identified as the main target destination, Africa is growing in prominence for Chinese resource investors.

"Although natural resources continue to be the priority industry target for Chinese investors overseas, we are seeing other industries starting to get increased attention, including technology, manufacturing and services industries," said Andrew Li, Transaction Services Partner at PwC. "Meanwhile, investors are broadening their target regions to include the United States, Japan and the European Union."

China's domestic and in-bound merger and acquisition deals also rebounded strongly, reaching peak levels before the financial crisis. Deal volumes increased by 26 percent to 1,884 in the first half of this year, compared to a three-year low in the first half of 2009.

The largest transaction in the first half of 2010 was China Mobile's acquisition of a 20 percent stake in Shanghai Pudong Development Bank for $5.8 billion. Foreign in-bound merger and acquisition activities are still below pre-financial crisis levels, but are trending back.

Financial buyer activities including private equity and venture capital have flat lined, but foreign funds remain committed and domestic private equity and venture capital fund raising in the first half of 2010 reached record levels.

Looking ahead, domestic strategic merger and acquisition activity in China is expected to increase in industries previously only accessible to State-owned enterprises.

Meanwhile foreign investors are expected to re-enter the market at volumes last seen prior to the financial crisis.

"Foreign investment levels are expected to grow further, especially in high-technology manufacturing that will benefit from the growth of Chinese consumer spending, as well as new energy and environmental protection industries," said PwC's Transaction Services Partner, Xiaogang Wang.

As for Chinese outbound investment which has seen record growth, this trend is expected to continue and in an increased number of industries apart from natural resources including automotive, equipment, and high-technology industries.

"The appetite for Chinese enterprises to invest overseas is showing no signs of slowing, and with Chinese enterprises' increasing interest in global markets, technical capability and production expertise, and stable financial returns in mature asset markets.We can look forward to the announcement of many more outbound transactions," said Wang.