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Real estate drives record China M&A activities in 2014
China merger and acquisitions (M&A) activity reached record highs in 2014, both in terms of the number of deals (6,899) and their total value (US$407 billion). Technology, consumer-related and financial services were important sectors, partly reflecting the development of the broader economy.
The Asset 27 Jan 2015
China merger and acquisitions (M&A) activity reached record highs in 2014, both in terms of the number of deals (6,899) and their total value (US$407 billion). Technology, consumer-related and financial services were important sectors, partly reflecting the development of the broader economy. But real estate remained the biggest single sector by value, as developers sought new sources of capital. Private equity (PE) and financial buyers also saw their largest ever amount of capital deployed on new investments at US$73 billion, up 101% on 2013.
 
“Strategic M&A activity showed very strong performance across all categories throughout the year,” says David Brown, PwC China and Hong Kong transaction services leader. “Ongoing consolidation as China’s domestic economy matures was a key driver. There were also some sizeable deals in foreign-inbound strategic M&A, particularly in banking and financial services.”
 
PE deals saw record volumes (up 51%) and more than doubled by value (up 101%). Participation in the reform of state owned enterprises (SOEs) played a major part, but outbound deals - on a significant scale for the first time - also contributed.  Technology and consumer-related sectors accounted for more than half the volume of deals – reflecting investment plans that aim to be in tune with the strategic direction of the wider economy.
 
“We saw a doubling in the volume of outbound investment by local PEs and financial buyers,” says Christopher Chan, PwC China and Hong Kong advisory partner.  “Deal values also reached a record high, as PEs sought out overseas businesses with a strong China angle in their growth strategies.”  
 
While deal growth in terms of volume and values has only gone in one direction in 2014, a clear division can be seen in the outbound investment strategies of private and state owned enterprises. SOEs have continued to do deals in resources and energy sectors, whereas POEs – which have accounted for the majority of deals – have sought out technologies and brands which they can bring back to the China market. For the first time, local PE and Chinese financial buyers are also contributing to outbound activity in a meaningful way.
 
“The volume of outbound deals increased by more than a third in 2014 to reach a record level of 272,” adds Brown. “POEs continue to lead the charge, but this year we have seen that financial buyers and PEs have not only contributed to deal volume but also started to make a significant contribution to values.”
PwC expects another healthy year for China M&A activity in 2015. The reform of SOEs will continue to feed major domestic transactions, POEs will lead the outbound charge and PE will participate in all types of M&A activities. Active industry sectors will include technology, media and telecommunications (TMT) - especially around Internet, financial services, retail and consumer, real estate and healthcare.  
 
For the PE industry, PwC expects to see larger deals and buyouts, as well as PE involvement in outbound transactions. Exit-related activity will include IPOs, strategic trade sales including to A-Share listed buyers, and – eventually – secondary PE sales.
 
“There will be a number of drivers of growth in China M&A,” adds Brown. “Many industries will continue to consolidate in order to become more efficient. A-share listed companies will be looking for inorganic growth through acquisitions. There will be ongoing reform of SOEs and in turn this will lead some of them to outbound activity. Many of them are now building a presence in Hong Kong as a platform for such activity in future.”

    

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