Soaring stock markets are driving up the cost of doing mergers and acquisitions in the mainland, scaring away foreign buyers even as domestic deals boom. Mainland M&A deals rose 20 per cent in the first half of this year from a year ago although the value of transactions fell 6 per cent, according to data from PricewaterhouseCoopers. The drop in value was blamed on a number of big deals in the year-ago period. The accounting firm said there were 808 deals worth US$27.6 billion in the first half, compared with 674 worth US$29.4 billion a year ago. Large amounts of available cash and strong government support for industry consolidation are fostering more domestic deals while soaring equity valuations are making it harder for foreigners to buy mainland companies. The benchmark Shanghai Composite Index has advanced 45 per cent this year. Deals between domestic companies grew from 358 in the first six months of last year to 512 in the first half of this year. This was boosted by the restructuring of state-owned firms in the energy, steel and cement sectors. 'There's a lot of petrol left in that tank, so we see no reason for that to slow down,' said David Brown, a partner at PricewaterhouseCoopers. Meanwhile, the number of deals involving foreign buyers in the first half of the year fell to 296 from 330 in the year ago period. Foreign companies have paid high prices for mainland acquisitions because they are eager to expand in the mainland, the world's fastest-growing major economy. However, the willingness to pay a premium is waning. Mr Brown said some negotiations were being abandoned because the parties were unable to agree on a price. Many potential sellers were also conducting initial public offering plans and sale negotiations simultaneously, boosting prices. Price-earnings multiples are very big right now, and they provide a reference point for the seller, Mr Brown said. 'If they can do an IPO at 30 times earnings or sell to you, they will ask for 30 times from you as well.' Foreign buyers tend to pay more than domestic investors because sellers feel that foreigners have deeper pockets, Mr Brown added. However, sellers also may prefer a foreign buyer in order to attract management or technical expertise. Mr Brown dismissed the notion that economic nationalism was scaring away foreign buyers, although he said closing a deal can be tough. Beijing has tightened scrutiny of big foreign purchases of state assets. 'There is a perception that if the foreign company is making a financial investment, versus a strategic one, and they are doing a large transaction or looking at a larger stake that pursuing approval can be very difficult,' he said. Overseas buyers such as private equity firms are now trying to gain exposure to mainland companies using other investment vehicles, such as local currency funds. Chinese companies are slowly going international but the growth of outbound acquisitions remains slow compared to expectations. The number of outbound deals rose to 31 from 18 one year ago with much of the activity taking place in the energy, mining and minerals sectors.