Outbound M&A activity should continue to increase due to relatively attractive valuations for U.S. and European companies
There is good news for Chinese M&A lawyers and businesses alike as the China M&A market is poised to continue to boom, with both inbound and outbound deals likely to show double-digit growth this year, according to a new report published this week by the investment banking firm Robert W. Baird (“China M&A Market 2011 Review and Outlook for 2012 and Beyond”).
In the report, Baird notes that, after stalling amid the global economic slowdown, deals in China reached record levels in 2010 and again in 2011, when they set another record high for both number of deals and average deal value. Main drivers of the activity appear to be an easing of restrictions on inbound acquiring companies and financial sponsors and the increasing strength of Chinese companies looking to expand overseas.
“Outbound M&A activity should continue to increase due to relatively attractive valuations for U.S. and European companies,” said Anthony Siu, Baird’s Shanghai-based Head of Asia Investment Banking. “Further, Chinese companies are in position to capitalize on opportunities in Europe stemming from the regional weaknesses and constrained credit."
Other key points from the report include:
•Deals over $1 billion and deals valued between $100 million and $499 million were the fastest growing segments of the total China M&A market.
•Outbound M&A registered a 23.8% increase in 2011 and is likely to keep growing as Chinese companies buy access to brands, technology and overseas markets.
•Outbound majority interest M&A rose even more strongly, with aggregate deal value up 29% to $42 billion in 2011, and volumes up 32% to 332 transactions.
•The number of majority interest deals has grown by 20% a year since 2001, reflecting changes in Chinese regulations for inbound strategics and financial sponsors and the goals of outbound Chinese acquirers.
•The leading sector for M&A in 2011 was Computers and Electronics, representing 17.3% of the total deal count, up slightly from 2010. This was followed by Real Estate and Property (8.4%), Professional Services (6.6%), Mining (6%) and Healthcare (5.7%).
So it seems the future is looking ever brighter for Chinese horizons, and as the report states, China’s economy has a direct, proven impact on the M&A market in the country and Baird ‘remains positive on China’s prospects for economic growth and cross-border M&A activity’.
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