M&A to keep growing, PwC says

PUBLISHED : Saturday, 14 January, 2012, 12:00am
UPDATED : Saturday, 14 January, 2012, 12:00am


Mergers and acquisitions activity involving Chinese companies should continue to rise this year amid economic growth at home and buying opportunities abroad, PricewaterhouseCoopers said yesterday.

Chinese firms would be particularly keen to buy companies and other assets overseas this year as global uncertainties presented good investments, particularly in Europe.

The global auditing firm expects there will be double-digit growth in outbound activity. In 2011, the number of outbound acquisitions increased by 10 per cent to 207, while the value of such deals rose 12 per cent to a US$42.9 billion.

Outbound deals in the industrial and consumer sectors grew rapidly, making up 35 per cent of the number of overseas acquisitions last year, up from 22 per cent in 2010. Resources and energy deals make up 42 per cent of the number of overseas acquisitions and 83 per cent of deal value.

David Brown, Greater China private equity group leader at PwC, said outbound acquisitions in the industrial and consumer sectors would outpace growth in the energy and resources sector this year. 'China is moving from low-cost manufacturing to high value-added, high technology,' he said. 'It needs to acquire technologies, know-how, intellectual property and consumer brands.'

Europe emerged as an important destination for acquisitions last year, with the number of deals jumping 76 per cent to 44, making it the third most popular destination behind Asia and North America.

The number of European deals should continue to rise this year, Brown said, but Asia would remain an important destination because of its proximity to China.

While outbound acquisitions should remain strong this year, Brown said foreign companies might hold back or slow down their investment plans until market conditions in Europe stabilised.

Domestic merger and acquisition activities should remain strong as market consolidation took place across different sectors, he said.

Private equity firms had done well in 2011 as they emerged as the key provider of capital in the private sector amid credit tightening, PwC said. Private equity firms had raised US$44.1 billion in 2011, up about 45 per cent from the previous year. The number of investment exits through initial public offerings, though, dropped from 220 to 185 because of choppy market conditions.

Brown said there would be consolidation in the private equity industry on the mainland as weaker firms exited the scene, squeezed out by mature, stronger, domestic firms.

Christopher Chan, advisory services partner of PwC, said the industry would wrestle with a shortage of talent and experience both at home and abroad in the longer term.