Hong Kong, mainland China M&A deals rise 12.6pc, driven by consumer firms

Completed transactions in the first half totalled US$84.6 billion, driven by consumer companies

PUBLISHED : Friday, 12 July, 2013, 12:00am
UPDATED : Friday, 12 July, 2013, 4:41am

The value of merger and acquisition deals involving mainland and Hong Kong companies rose 12.6 per cent to US$84.6 billion in the first half of this year, driven in part by an appetite for consumer companies amid lingering food-safety concerns on the mainland.

Despite a lacklustre capital-raising landscape for equities, signs of improvement in the M&A market were supported by cheap bank loans and syndicated loans, as well as bond issuance. Outbound M&A shot up 70.7 per cent to US$37.3 billion, making the six-month period the most active since 2001, thanks to Shuanghui International's US$4.7 billion bid for US food processing firm Smithfield Foods.

The Smithfield purchase promises to be the biggest US takeover by a Chinese firm and underscores the mainland's renewed interest in scooping up overseas assets. However, even with a financing plan put together by state-controlled lender Bank of China and Morgan Stanley, US regulators and politicians are still scrutinising the bid for America's largest pork producer, with some US senators expressing concern about the deal's national security implications.

Meanwhile, the largest transaction in the region was a US$9.7 billion joint-venture between Beijing Guolian Energy Industry Investment Fund, Taikang Asset Management and PetroChina.

Apart from interest in foreign natural resources and energy, the mainland's state-owned companies have also started to look into smaller management buyout deals in the consumer sector, with the value of such deals increasing sevenfold to US$1.6 billion, according to an industry report complied by research firm Mergermarket.

Inbound and domestic deal value also increased significantly, by 42.4 per cent to US$8.8 billion, after Mengniu Dairy, China's biggest maker of dairy products, proposed a US$1.47 billion takeover of Yashili International last month.

Mengniu said it was stepping up its vertical integration plan, from raw materials to downstream processing.

In May, it increased its stake in China Modern Dairy, its new supplier of raw milk, spending US$407 million to buy additional shares from private equity firms CDH Investments and KKR.