Mergers & Acquisitions

China’s M&A activity to rebound next year, helping boost global deal flow to US$3.2t

Beijing to ‘green light’ more overseas investments by Chinese companies as stable yuan dampens concerns of capital outflows

PUBLISHED : Monday, 13 November, 2017, 8:33am
UPDATED : Monday, 13 November, 2017, 8:33am

Beijing’s relaxation on foreign ownership in financial joint ventures and its push on New Silk Road projects is set to boost mergers and acquisitions next year, amounting to global deals potentially worth US$3.2 trillion, up 23 per cent from this year’s expected total, according to international law firm Baker McKenzie.

Mergers and acquisitions in China will grow to US$278 billion in 2018, reflecting a gain of 16 per cent from US$240.2 billion in 2017, according to the law firm.

Thanks to a relaxation of rules on foreign investment, investors purchasing stakes in mainland companies is expected to grow to US$47.9 billion in 2018, up 73 per from US$28.1 billion in 2017, the law firm said.

China announced on Friday it would eliminate ownership caps on joint ventures in the financial services sector in five years.

China to ease ownership limits on foreign joint ventures in finance sector

China’s outbound investment dropped 30 per cent in the first nine months this year to US$118 billion after Beijing tightened rules in an effort to curb extravagant investment by Chinese companies overseas. Baker McKenzie believes a policy U-turn will be unveiled next year as the strengthening of the yuan reduces the need for administrative curbs on capital outflows.

Meanwhile, additional merger and acquisition activity can be expected as more Chinese companies compete to invest in infrastructure projects related to the Belt and Road initiative.

“We are optimistic about the long-term growth of China M&A [mergers and acquisitions]. It is true that China’s capital control and foreign investment restrictions have had some negative impact on the country’s outbound investment in select sectors,” said Stanley Jia, chief representative of Baker McKenzie’s Beijing office.

“These measures, however, will help to foster a more sustainable ecosystem that would not only be more favourable for Corporate China’s outbound investment strategies but also beneficial to the country’s economic development in the long run,” Jia said.

An uptick in listing activity is also expected, with the value of global cross border IPOs to reach US$66 billion in 2018, Baker McKenzie said.

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“We see an uplift in both M&A and IPO activity as deal makers and investors gain greater confidence in the business prospects of acquisition targets and newly-listed businesses,” said Paul Rawlinson, Baker

McKenzie’s global chair.

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