Foreign expansion ambitions to boost China M&A

Buyout activity in China is expected to rise this year, fuelled by overseas acquisitions, says PwC

PUBLISHED : Thursday, 31 January, 2013, 12:00am
UPDATED : Thursday, 31 January, 2013, 5:20am

China's merger and acquisition (M&A) activity is expected to rebound this year, driven mainly by the overseas expansion ambitions of privately owned companies in the retail and consumer goods sector, global accounting firm PricewaterhouseCoopers (PwC) said yesterday.

"Privately owned companies have become mature enough and able to move a step forward to the overseas market. We are expecting more large deals to involve the mainland's private companies," said Nelson Lou, PwC's China advisory services partner.

"Some Chinese consumer goods' companies are interested in buying overseas brands in an effort to strengthen their own brand," he added.

Other sectors, in which competition in the mainland market is fierce, would also likely see more M&A activity, Lou said, citing the carmaking industry as an example. Weakness in the United States and European markets would also provide additional opportunities for M&As in the domestic carmaking industry, he said.

At home, the resources sector would continue to be the focus of M&A activity by the mainland's stated-owned enterprises this year, after a number of large deals in 2012, Lou said.

State-owned oil giant China National Petroleum Corp said last December that it had agreed to buy a 10.2 per cent stake in the Browse liquefied natural gas project in Australia for US$1.63 billion, while oil-refiner China Petrochemical Corp, or Sinopec, spent US$2.5 billion on the acquisition of a Nigerian offshore project from French energy company Total last year.

According to research by PwC, the number of acquisitions by mainland companies fell by 7 per cent to 191 deals last year versus 2011, but the value of the deals rose to a record high of US$65.2 billion, an increase of 54 per cent year on year.

However, the total number of deals, including domestic M&As made by companies in Hong Kong, Macau and on the mainland, as well as overseas companies' acquisitions of domestic companies, fell by 26 per cent to 4,115 deals last year from the previous year. The value of the total deals also dropped 9 per cent to US$199.5 billion.

Leon Qian, PwC's China transaction service partner, said domestic M&A deals and acquisitions by foreign strategic buyers hit a five-year low due to the economic downturn. "We think activity will rebound in 2013 as the direction of the Chinese economy becomes clearer," he said.

Multinational companies would boost their investment in the China market as the global economy would likely bottom out this year, Qian said.