As Chinese outbound acquisitions grow and shift towards regions like Western Europe and North Asia, regulators are paying closer attention.
Shifts in China outbound M&A
China outbound M&A has grown in the past decade, but its composition has shifted for both acquirors and targets towards new sources of growth. Among outbound deals over $500m, the majority of acquirors have shifted from state-owned enterprises to private companies and listed giants. Back in 2008, state-owned acquirors dominated more than 60% of such market activity; that proportion dropped to only 11.3% in 2017, and the overall trend continues in 2018.
Target nationality has also shifted over the past decade as Chinese acquirors moved from M&A for general overseas expansion to strategic purchases. Targets are now concentrated in regions with more mature industries like Western Europe and North Asia instead of scattered globally. Buyers’ choice of industry has also changed from manufacturing and energy to growth sectors like technology and telecom. Volume of Chinese outbound M&A into natural resources and utilities in 2017 was down 18.3% since 2012. In contrast, volume targeting tech companies jumped from $516m 10 years ago to $18.1bn last year.
Another roadblock for Chinese outbound
Though China outbound M&A thrived, its phenomenal growth caught the attention of foreign regulators and has slowed since 2016. Multiple Chinese deals have been blocked by the Committee on Foreign Investment in the US (CFIUS). Such deals include Ant Financial’s $2.1bn acquisition of MoneyGram and Canyon Bridge’s $1.3bn acquisition of Lattice Semiconductor. Recently, Sino IC’s proposed $562m acquisition of Xcerra was withdrawn due to the lack of CFIUS approval.
A few weeks ago, reports also surfaced that Germany, France, and Italy launched an initiative to speed up the approval of EU law that would tighten rules for foreign acquisitions of European firms. Currently, pending and rumored Chinese acquisitions into Europe that could fall under regulatory scrutiny total more than $40bn.
|China M&A targeting Europe – pending or rumor $1bn+ deals in 2017|
|Jun 15||R||Esselunga||Yida Int’l Investment Grp||$8.4bn|
|Sep 8||P||Rosneft Oil (14.2%)||Shanghai Energy Fund Investment||$8.0bn|
|Sep 18||R||OHK (51.1%)||China State Construction Engineering||$4.4bn|
|Dec 27||P||Volve AB (7.8%||Zhejiang Geely Holding Grp||$3.2bn|
|Jun 15||R||Rovio Entertainment||Tencent Holdings||$3.0bn|
|Oct 31||R||Payyakh Oil Field||CEFC China Energy||$3.0bn|
|Sep 1||P||Banque Internationale a Luxembourg (89.9%)||Legend Holdings||$1.8bn|
-Written by Karl But, Dealogic Research
Data source: Dealogic, as of February 26, 2018
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*Note: R= rumor, P= pending deal as of Feb-26