Overseas acquisitions to take a back seat as Chinese consumer brands sharpen domestic focus

Chinese companies’ zest for overseas acquisitions is expected to drop and they will become increasingly selective in pursuing targets as they focus on domestic growth, according to an investment expert.

“Although outbound has dropped in terms of the number of deals, the deal size has gotten bigger,” said Karen Cheung, managing director specialising in Asian consumer retail at global investment bank advisor BDA Partners. “The trend I’m seeing is that Chinese consumers are starting to appreciate local brands. Yes, they still like Western brands, but I think they appreciate the authenticity, how relevant the Chinese brands are. It goes back to their roots and highlights the culture.”

The number of outbound consumer deals over the last 10 years peaked in 2016, which saw 35 transactions worth US$9.9 billion, according to data from financial markets platform Dealogic. In 2017, M&A deals dropped to 27 worth US$2.2 billion.

But last year, although the number of transactions remained flat, their value increased to US$10.4 billion.

Over the next year New York-headquartered BDA Partners expects those selective outbound transactions to be centred around things consumers cannot find domestically, like health and wellness goods and well-recognised brands.

“They [will] still look for foreign brands but will be selective. They won’t just go for any brand just because they want to come to China, they will see whether there is any value in partnering with these brands: be it technology, heritage, or something these foreign brands can offer,” she said. “I wouldn’t say that just because local brands are doing well they will stop partnering with foreign brands.”