Mainland acquirers expected to swoop on more Hong Kong family firms
China’s SOEs are showing big interest across a broad range of sectors particularly takeover deals linked to China’s ‘Belt and Road’ economic initiative
More Hong Kong family firms will become targets of acquisitive mainland buyers this year, particularly those planning overseas expansions, according to a new study by UBS.
“Competition is intensifying, tempting Hong Kong family companies to sell their assets to bigger industry players,” said managing direct at UBS’ investment bank, Samson Lo, who’s responsible for mergers and acquisitions in Asia at the Swiss finance house.
“China state-owned enterprises(SOEs) are good examples because they usually know their direct competitors’ business operations and prefer to maintain the management and keep their listing status.”
The latest acquisition involved the family of former Hong Kong Chief Executive Tung Chee-hwa, whose shipping company Orient Overseas International was bought by Chinese rival Cosco Shipping Holdings for HK$49.23 billion (US$6.3 billion).
However, China’s overall outbound M&A volume dropped 40 per cent to US$67 billion in the first half of this year, compared with same period last year.
A recent report from Mergermarket said tightened outbound M&A controls imposed by Chinese regulators have dampened deal flow, with a significant impact on large-ticket agreements.
But the decline narrowed to eight per cent, if last year’s $43 billion deal by ChemChina to takeover Syngenta was removed from the equation.
Lo still believes China’s outbound M&A market remains busy, estimating the volume of outbound M&A deals will hit US$189 billion this year, its second highest ever level.
Eliminating the mega deals put under the strict capital controls imposed by China, most outbound M&As were small, averaging under US$1 billion, said Lo from UBS.
“The stricter regulations have dampened the enthusiasm of China’s private companies to buy overseas assets to some extent, and sky-high priced deals have reduced,” he added.
“Chinese acquirers, including private equity firms, are now seeking more domestic opportunities, given the current capital controls.”
Lo said China’s SOEs are showing big interest across a broad range of sectors including chemicals, fashion, infrastructure, insurance, logistics, travel and energy, particularly deals linked to China’s “Belt and Road” economic initiative, which is rejuvenating the traditional “Silk Road” trading routes.
“M&A activity in Southeast Asia, especially in Singapore, is heating up,” he added.
A Chinese-backed consortium led by housebuilder Vanke recently took over Singapore-listed GLP – one of the world’s largest logistic operators – for US$11.6 billion, which is set to become Asia’s biggest-ever private equity acquisition by value.