Mergers and acquisitions plunged by a third in China in the first six months from last year as the economy slowed down, but such deals are expected to pick up in the second half.
A study, by accounting firm PricewaterhouseCoopers, showed a 42 per cent plunge in M&A deals by foreign investors in the period, as they pulled back amid uncertainties over the economy. Domestic deals shrank 25 per cent while private-equity deals worth more than US$10 million fell a steep 39 per cent.
Outbound mergers and acquisitions from China, however, maintained their momentum. Deal numbers were flat year on year but values nearly tripled compared with the first half last year and are on track to set a record this year.
PwC Greater China private equity group leader David Brown said deals in the resources and energy sectors continued to dominate overseas acquisitions of Chinese companies, making up about 44 per cent of total outbound transactions.
Last month, China National Overseas Oil Corporation, the nation's dominant oil and gas producer, said it was prepared to pay US$15 billion for Canada's Nexen, as part of a strategic move to enhance energy security by diversifying away from politically unstable regions such as the Middle East. If successful, it will mark China's largest overseas acquisition.
Chinese outbound deals accounted for 69 per cent of the total deal value in the first half, and seven out of the nine deals were worth over US$1 billion each.
"These trends will likely continue and the number and size of transactions will grow, driven by a number of factors including the increasing experience and confidence of the participants," Brown said. Growing support from domestic financial institutions and private-equity funds would also help boost outbound activities, Brown added.
PwC said M&As would likely increase in the second half as more funds prepared to invest and more deals moved through the pipeline. Still, there could be fewer deals this year than last year.
Private-equity funds remained highly liquid and eager to enter the market, the PwC study found.
"The cumulative position shows record levels of capital available for investment by the PE industry in China, and there will be pressure to deploy these funds in new investments," Brown said.
With stock markets still weak, many funds could opt to exit their portfolio companies by selling out to other investors, Brown said, adding that this too could be a source for merger-and-acquisition growth.
Private equity funds continue to be interested in investing in sectors that are in line with 12th five-year plan priorities such as the consumer, health care and technology sectors.