China’s outbound investment momentum unabated despite economic uncertainty

Published: 10 November 2015

Chinese outbound M&A investments in the first half (H1) of 2015 reached a record level and its growth rate surpassed that of major developed countries.  During the period, there were 173 Chinese outbound M&A transactions, worth US$56.8 billion which grew by 25% and 70% by volume and value respectively from the same period a year ago. Chinese investors continued to move up in the global value chain through acquisitions of mature companies with advanced technology and best management practices.

In H1 2015, China recorded significant capital outflows as Chinese investors stepped up their outbound investments as part of a diversification strategy in light of slowing growth in China. The global macroeconomic environment with low interest rates and low asset values in a number of major economies has also played a role in attracting China's outbound investments.

This report is the 7th edition of the series, which reviews Chinese outbound M&A activities based on publicly available sources, Mergermarket, an independent M&A intelligence provider, and insights from Deloitte practitioners around the world. This report is one of the signature thought leadership pieces from Deloitte Global Chinese Services Group. Given the unprecedented increase in Chinese outbound M&A activities in 2015, the research has been limited to M&A transactions without considering greenfield foreign direct investments made by Chinese investors in the first half of 2015.

“Key favorable factors for Chinese outbound investments include government policy encouraging "going out" and moving up the value chain, monetary easing and the strong RMB (despite its recent decline) relative to many other currencies.  The benefits brought about by the current economic reforms instituted by the government may further fuel the long term growth of China's outbound M&A,” said Patrick Yip, National Leader, Deloitte China M&A Services.

According to the report, Western Europe remained the most favorable outbound M&A destination by deal value for Chinese companies for H1 2015. Western Europe attracted 35 Chinese outbound M&A deals with a total value of US$24.3 billion for the first six months of 2015, 137% higher compared to same period last year. In terms of deal value, United States is the second popular target market for Chinese investors, with an aggregate value of US$9.9 billion, up 43% higher year-on-year.  

Sector-wise, there were 35 Chinese outbound M&A transactions in the Technology, Media and Telecommunications (TMT) sector with a total value of US$24.4 billion for the first six months of 2015, 209% higher by value against the same period a year ago. During the period, the TMT sector accounted for 43% of China’s outbound investment by value and 20% by volume, recording the fastest growth by industry sector. In the Manufacturing sector, there were 39 transactions with a total value of US$12.8 billion, 72% higher by value compared with the same period in 2014.

During the same period, there were 12 Chinese outbound M&A transactions in the Financial Services sector, 50% higher than last year. In value term, outbound investments in the Financial Services sector, with a total value of $8.2 billion, registered an increase of 176% year-on-year. During the first six months of 2015, 22 outbound transactions took place in the Energy & Resources sector with a total value of US$5.5 billion, 20% lower against the same period in 2014. The value of Chinese acquisitions in the Consumer Business sector was US$4 billion declined by 47% for H1 2015. By volume, there were 39 transactions in this sector, 3% lower from the same period a year ago.

The report also highlighted the challenges for Chinese companies during their outbound M&A journey. Difficulty encountered in trying to adapt to target markets and management styles has continued to be a major issue for post merger integration, for example.

“Without any doubt, M&A is one of the fastest routes for Chinese companies to expand their businesses and tap the global markets. Over the past five years, we have witnessed the growth in the number of Chinese companies in the Fortune Global 500 list. Yet, companies need expend more time and efforts on comprehensive planning, for example, pre-deal due diligence, structuring and post-deal integration, to handle every aspect of the challenges including stakeholder communications and incentives for key employees etc. Without proper planning and execution, companies will be unable to unleash the full benefits of the M&A transactions,” said Rosa Yang, Chairman of Deloitte Global Chinese Services Group (CSG).