Another ‘robust’ year ahead for mergers and acquisitions by Chinese businesses, says EY

99pc of Chinese respondents to company’s ‘Capital Confidence Barometer’ say they see an improving or stable economy at home and abroad

PUBLISHED : Friday, 25 May, 2018, 8:18am
UPDATED : Friday, 25 May, 2018, 8:17am

Chinese mergers and acquisitions activity is expected to have another “robust” year in 2018, according to a report released by global accounting firm EY on Thursday. Trade tensions have failed to hold back companies from pursuing their “go global” ambitions and M&A activity by private equity firms.

Chinese companies are more optimistic about economic and market conditions, and expect the M&A market to remain upbeat, EY said in its latest “Capital Confidence Barometer”, a global survey of more than 2,500 senior executives in 43 countries conducted twice a year since 2009.

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For the first time, 99 per cent of Chinese respondents said they saw an improving or stable economy, at home and abroad.

“We do not see rising protectionist action by governments as having a major impact on M&A activity, as executives understand that dealing in a globalised market is necessary,” said Bernard Poon, managing partner of transaction advisory services at EY in Hong Kong and Macau.

The survey was conducted in March and April, at a time when there were signs of a full-blown trade war between China and the United States, the world’s two largest economies.

About 40 per cent of respondents said changes in trade policy and protectionism were near-term threats to business growth. However, Chinese businesses still ranked portfolio transformation at the top of their agenda, according to the survey.

A majority of Chinese companies said they had confidence in the M&A market, on the back of a record first quarter of deal making in 2018.

According to Mergermarket, the extraordinary surge in deal making seen at the end of 2017 has continued into 2018, with global M&As hit their highest first-quarter value since the company started tracking the sector in 2001.

But the sector is not expected to see a frenzy of buying at inflated prices, or over-leveraged deals, as buyers are more mindful of valuations, as well as the shifting landscape of government and regulatory intervention in deal making, said EY.

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Regulatory tightening led to a sudden drop in global acquisitions by Chinese companies last year. Mainland China and Hong Kong reported a 32.8 per cent fall in outbound M&As from a historical high of US$204.2 billion in 2016 to US$137.1 billion in 2017, according to a report by Mergermarket.

“Current M&A activities are no longer dominated by corporate acquirers, but private equity, which has rebounded since 2017, and has deployed its dry powder,” said Erica Su, managing partner at EY transaction advisory services in Greater China.