Mergers & Acquisitions

Trade war shrinks Chinese companies’ first-half mergers and acquisitions in America

Deals in the US have fallen to US$1.5b in the first half from US$7.5b a year ago, bumping the US down to China’s eighth top target market

PUBLISHED : Sunday, 22 July, 2018, 7:03pm
UPDATED : Monday, 06 August, 2018, 2:42pm

China’s outbound mergers and acquisitions to the US in the first six months of the year shrank on heightened trade tensions with the US even as the mainland’s overall outbound deals grew and swung more towards Europe.

The total Chinese outbound M&As have increased since the beginning of last year, but deals in the US have shrunk as the dispute escalated between US President Donald Trump and his Chinese counterpart Xi Jinping over duties and security on investments, culminating to this month’s trade war and retaliatory battle of tariffs.

Total value of these global outbound M&As reached US$76 billion in the first half of the year, up from US$53 billion in the year-earlier period, according to data compiled by Thomson Reuters for multinational law firm Baker McKenzie.

But the value of US company buyouts, or 44 deals, fell to US$1.5 billion during the first half of 2017, from US$7.5 billion, bumping the US down to China’s eighth top target market from No 2 in early 2017. UK was China’s top market with US$15.23 billion at the time.

Purchased US assets fell to US$3.7 billion in the second half of 2017, with 62 deals making up 5 per cent of global outbound value, lowering the US to the fourth top target country.

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

“The escalating trade tensions between China and the US is certainly a major factor,” said Tracy Wut, M&A partner at Baker McKenzie, Hong Kong. “The other would be the increasing scrutiny of the CFIUS [Committee on Foreign Investment in the US] review, which has raised a lot of uncertainties around deal certainty and timetable.”

Through the committee, the US has scrutinised incoming deals under the Trump administration over national security concerns, thwarting Chinese conglomerate Dalian Wanda Group’s proposed US$1 billion acquisition of American entertainment company Dick Clark Productions in March 2017.

Restrictions by the Chinese government would also have played a role in the decreased buyouts.

Beijing’s controls has restricted outbound investments since May 2017, reversing a record capital outflow recorded in 2016.

“In the short term, we expect Chinese investment in the US to dampen,” said Wut. “Chinese outbound M&As, particularly to the US, may slow down, and the shift in geographical focus could present new opportunities for other regions.”

None of the top five cross-border deals by value were of US companies during the first half of 2018, as the Chinese targeted Europe, South America and Hong Kong.

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

An intended deal by state-owned utility China Three Gorges to acquire one of Europe’s major electricity operators, EDP Energias de Portugal, for US$28.6 million, is this year’s top transaction so far, while the acquisition of German automotive corporation Daimler AG by Chinese manufacturer Zhejiang Geely Holding Group for US$8.9 million in February, comes second.

“China is actively courting the EU with offers of reciprocal market access in an attempt to show foreign investment is not a one-way street, while trade relations with the US continue firmly on a downward path,” said Thomas Gilles, chair of Baker McKenzie’s EMEA-China Group.