Polarising investment trend seen in China’s TMT sector, says PwC

PUBLISHED : Wednesday, 29 March, 2017, 10:15pm
UPDATED : Wednesday, 29 March, 2017, 10:15pm

Private equity (PE) and venture capital (VC) investments in mainland China’s technology, media and telecommunications sector are polarising even as the segment maintains its popularity among investors, global professional services firm PwC said on Wednesday.

The sector’s popularity still dwarfs other industries as it accounted for more than half of total PE and VC investments in mainland China in 2016, according to PwC.

PE and VC investment in the TMT sector grew to US$59 billion in 2016, up 61.5 per cent year on year. On quarterly basis, deal value dropped in the third and fourth quarter after it rose to a high of US$20 billion in the second quarter thanks to fund-raising by a number of unicorn companies – those whose valuation is more than US$1 billion.

“The slowdown in the TMT sector occurred a bit later than the overall [PE and VC investments] and it remained an attractive sector for PE and VC investors,” said Gao Jianbin, PwC China TMT leader in Shanghai. “Notably, investment is highly concentrated and polarised.”

On one hand, there were a vast number of small deals, indicating relatively low value, whilst on the other hand, a small number of big deals acted as major contributor to deal value.

For instance, 52 deals valued at more than US$100 million each accounted for about half of total investment value in the TMT sector in the second half, during which there were a total of 1,478 deals, according to PwC.

“The trend might well roll on into 2017,” Gao said, referring it to a seemingly “winner takes all” trend.

Caution over uncertainty is especially palpable in first-round investments, which accounted for 13 per cent of total investment in the TMT sector in the second half, with a majority of deals featuring a single-deal value below US$5 million.

In geographic terms, Beijing remains the top spot for investment both in deal value and volume, way ahead of the rest of the nation.

“In the near term, we expect Beijing to naturally remain as the most attractive place thanks to its ample number of investable deals there,” said Alvin Bao, a PwC partner in Shanghai.

Other major hot spots for deals included Shanghai, Zhejiang and Guangdong provinces.