Opportunities and Challenges
Trends and Forecast of China Outbound M&A Activities in Europe and North America
Deloitte releases its latest report—"China Outbound M&A Activities in Europe and North America – Trends and Forecast" today.
The report is conducted under the context that China outbound M&A activities have gone through explosive growth in the past five years; it captures current investment trends of Chinese buyers in the Europe and North America region, identifies major driving forces behind the growth, and provides future forecast by analyzing political factors, developmental needs of Chinese enterprises and outbound investment market conditions. Moreover, the report highlights some of the major challenges experienced by Chinese investors throughout their outbound M&A journey based on findings from a recent survey conducted by Deloitte.
As stated by the Ministry of Commerce, China achieved net capital outflow for the first time in 2014 as outbound direct investment surpassed foreign direct investment by $20 billion. Top-level strategies outlined by the Chinese government, such as the "Going Out Strategy" (To encourage Chinese enterprises to increase overseas expansion), "The Belt and Road Initiative" (To enhance international cooperation and connectivity between China and Eurasian countries) and "Supply-side Reform"(To deal with domestic over-capacity issue and nurture new industries), have helped to encourage Chinese enterprises' overseas M&A activities. As Keat Lee—partner of M&A Consulting at Deloitte China put, "Despite a number of internal and external restrictions currently affecting Chinese enterprises' overseas investment in North American and European Region, Chinese investors remain optimistic towards the investment outlook in outbound market. Countries like the United States and Germany will continue to attract Chinese buyers who aim to acquire advanced technologies and enhance their business capacity."
The report reveals expectations that the rapid pace of Chinese enterprises' outbound M&A activities would continue:
- Consumer product & services remains the most active sector for outbound investment
- Due to strong interest in acquiring core technologies and increasing market share, we expect to see deal activity growth in the TMT sector
- The life science and health care industry is likely to experience more M&A activities as investors aim to strengthen operation capacity and diversify product portfolios
- Deal activities will also increase in the financial service industry as investors seek to transform business models, increase revenue, and enter new markets
Deloitte’s study reveals that 60% of Chinese outbound M&A deals which did not realize proposed deal values are a result of ineffective post-merger integration (PMI)
- Acquisitions have a tendency to disrupt business momentum, drag on without generating expected synergies, and lead to compromised long-term strategic positioning
- Therefore, it’s critical to execute PMI which helps companies maintain existing business momentum, achieve synergetic goals, and ensure smooth transition for post-deal operations
According to Victor Chen, Director of M&A Consulting at Deloitte China, "successful PMI is not easy to achieve. Given its complexity, investors will often need to seek help from professional service providers like Deloitte, on topics such as financial and legal advisory, human capital advisory as well as cultural integrations.