China’s companies go on overseas shopping spree

Outbound mergers and acquisitions more than quadrupled to US$134.3 billion in the first half from a year ago

PUBLISHED : Wednesday, 10 August, 2016, 8:09pm
UPDATED : Wednesday, 10 August, 2016, 10:56pm

Chinese companies went on a global shopping spree during the first six months of this year, snapping up assets abroad as privately held businesses surpassed state-owned enterprises for the first time in the overseas push.

Outbound mergers and acquisitions more than quadrupled to US$134.3 billion in the first half, compared with US$30.1 billion during the same period a year ago, according to data by PricewaterhouseCoopers. Companies that aren’t owned by China’s government accounted for two-thirds of the top 20 deals by volume, PwC data showed.

“There was a sharp increase in outbound deal activity by both state-owned and privately owned enterprises in the first half,” said Roger Liu, a PwC partner. “While private companies dominated in terms of deal volume for some time, they have now overtaken SOEs in terms of deal value as well.”

Brexit dampens cross-border M&A activity

China overtook the US for the first time as the biggest buyer of technology-related assets, as businesses responded to Chinese Premier Li Keqiang’s prodding to help the country move up the value chain.

The depreciation of the Chinese currency in the past year against the US dollar also prompted many companies to park their investments abroad. At the same time, the Shanghai Composite Index had risen by 38 per cent over the past two years, making local companies more expensive to acquire.

”Many Chinese companies would prefer to make overseas purchases now rather than later when the currency becomes even cheaper,” said David Brown, transaction services leader at PwC China and Hong Kong.

The number of outbound mergers and takeovers was 29 per cent higher than the whole of 2015, with 24 deals valued more than US$1 billion each.

A majority of the largest takeovers and mergers were in the US and Europe, according to a separate report by Ernst & Young.

As China’s economy continues to expand at a slower pace than previous years, cash-rich Chinese companies are likely to set their sights further abroad to broaden their businesses outside their home turf.

“I expect the fast growth to continue,” PwC’s Brown said . “China still does not have as many mega companies as the US and Japan, therefore there is a big scope for corporate consolidation.”