August 8, 2017

Written by Nicholas Farfan and Karl But, Dealogic Research

Governments curb buying spree

Amid growing regulatory scrutiny of China outbound M&A targeting the US, volume has seen a 65% year-on-year decline in 2017 YTD. In comparison, such deals peaked at $65.2bn last year, with high-profile deals including HNA’s acquisition of 25% of Hilton Worldwide. Since then, regulatory agencies have been reviewing and rejecting an increasing number of transactions.

China’s State Administration of Foreign Exchange (SAFE) has pulled the brakes somewhat in an effort to stem capital flight and depreciation of the yuan in H2 2016. Simultaneously, the Committee on Foreign Investment in the US (CFIUS)—tasked with investigating transactions that may threaten national security—has become a larger factor in the success or failure of cross-border deals. All signs point to a deceleration of the 3-year run for China outbound M&A into the US.

Advisor fees at risk

With tightening restrictions, Chinese buyers may look to stop pursuing or shelve potential acquisitions in the US. Currently pending China outbound M&A targeting the US represents $9.7bn in deal volume that could potentially fall under regulatory scrutiny—with $75m of projected advisor fees at risk. Despite the US administration’s pro-business attitude, a lack of significant regulatory changes and a murky US-China economic relationship will likely bring increasing uncertainty with a negative impact on M&A in the long term.

Data source: Dealogic, as of August 7, 2017