Mergers & Acquisitions

Chinese firms’ deal making set back by Beijing and Washington’s intense gaze

Tighter investment controls has led to a 35 per cent decline in outbound investments with only one overseas M&A deal exceeding US$1 billion so far this year

PUBLISHED : Monday, 16 October, 2017, 4:56pm
UPDATED : Monday, 16 October, 2017, 9:54pm

China’s outbound merger and acquisition activities cooled off in the third quarter as tightened investment scrutiny from Beijing and Washington continue to take effect, a report issued on Monday showed.

Chinese companies recorded outbound M&A deals worth US$95.9 billion in the first three quarters of 2017, slumping 35 per cent from the same period last year, according to the Mergermarket report.

China stepped up controls over capital outflow last November amid a buying spree of overseas assets among Chinese firms, who overtook their American counterparts and became the world’s top buyer of global assets last year.

The State Council formally endorsed the tightened scrutiny on paper in August, listing out three categories where outbound investments were encouraged, restricted, and banned.

Beijing has cracked down on overseas investments by aggressive deal making conglomerates, including Anbang Insurance Group, Dalian Wanda Group, Fosun International, and HNA Group.

The controls have led to a rebound in the country’s foreign exchange reserves to an 11-month high of US$3.1 trillion at the end of September, after falling below the psychologically significant US$3 trillion level in February.

Apart from Beijing’s crackdown, stricter inspection of Chinese investments by the US government has also dampened transactions, the report said.

In September, US President Donald Trump blocked a US$1.3 billion acquisition of Lattice Semiconductor planned by Chinese-funded private equity firm Canyon Bridge Capital Partners in September.

Trump blocks Chinese takeover of US chip maker on national security grounds

The total value of US-bound M&A deals by mainland Chinese and Hong Kong firms fell 77 per cent to US$9.2 billion in the first three quarters from the same period last year, even though the US remains the most popular investment destination.

Deal size also shrank. Only one deal has exceeded US$1 billion this year, compared with eight in the first three quarters last year, includingWanda’s takeover of Legendary Pictures, a California-based media company.

“The absence of high profile mega deals has clearly affected the overall value of M&A activity,” said Roger Liu, a Shanghai-based partner at PwC’s transaction services division, in August.

The total value of M&A deals, domestic and outbound, in mainland China and Hong Kong fell 13 per cent in the first three quarters to US$258.9 billion compared with the same period last year .

Domestic transactions, however, have been robust this year - up 15 per cent in terms of value. Industrials and chemicals have been the most active sector by value and deal count, while education and training services have also seen a surge in M&A activity.

The biggest deal of this year has been the US$9.2 billion acquisition of China United Network Communications by a consortium led by China Life Insurance.