Chinese merger and acquisition deals in US down in first half of 2017

Experts blame the double whammy of US protectionist leanings and tighter capital outflow scrutiny by the Chinese central bank and main lenders

PUBLISHED : Sunday, 06 August, 2017, 6:11pm
UPDATED : Sunday, 06 August, 2017, 10:49pm

Merger and acquisition (M&A) activity by mainland Chinese companies in the United States dropped in the first half to just 22 per cent of the combined value of such deals a year earlier, due to the double whammy of Washington’s protectionist leanings and Beijing’s tighter capital outflow scrutiny, according to an industry report.

In the first six months of this year, the mainland ranked as the ninth biggest M&A investor in the United States with US$6.1 billion worth of deals, compared with US$27.5 billion in the same period in 2016, said the joint report from law firm White & Case and M&A data provider Mergermarket.

The result was in sharp contrast to last year, when the mainland was the third biggest M&A investor into the US, trailing only Canada and Ireland.

The sharp decline this year was due to the tighter scrutiny from regulators in both jurisdictions, though for different reasons, the report said.

In the world’s largest economy, heightened concern around US national security amid the Trump administration’s “America First” rhetoric has given regulators greater reason to rigorously scrutinise investments from China and other countries perceived to have more liberal trade relationships with countries less friendly to the US, said Christopher Kelly, a White & Case partner leading the firm’s M&A practice in Asia.

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While in China, Beijing has signalled tighter scrutiny of capital outflow since last year against a weakening yuan, which lost nearly 7 per cent in 2016 as the worst performing major Asian currency.

A tighter fist on fighting “irrational” outbound investments was also apparent, reflected in high drama this summer, when big-name private Chinese conglomerates – Wanda, Fosun, HNA and Anbang, together with a vehicle used by Chinese businessman Li Yonghong to acquire Italian soccer club AC Milan – were singled out for close scrutiny by domestic banks, under a directive by the banking regulator.

China’s ongoing scrutiny, reflected by the curbs on the “big-four” most active Chinese acquires, also put the brakes on deals from the mainland, with the hits expected to roll well into the second half of this year, Kelly said.

Deals worth more than US$2 billion can now expect tighter scrutiny from the mainland’s foreign exchange authorities, he noted.

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“Amid that trend, we have already seen two things happen: one is greater emphasis from Chinese investors on countries in Europe, such as Germany,” Kelly told the Post.

“The other is the return of financial sponsors and strategic investors from western markets seeking better opportunities [when there are fewer bidders from China].”

Despite the short-term slowdown, he said he is still optimistic about outbound M&As from China as a result of its rising economic clout and attempts to move up the value chain, he added.