China M&A Round-Up
Cross-border investment trends
Whether actively pursuing overseas acquisitions or just keeping tabs on the competition, global executives will find this review of China-related cross-border M&A activity to be a valuable tool for staying on top of one of the world’s most dynamic deal environments.
What’s the Deal?
The China M&A Round-Up team is proud to announce the addition of a new section to our monthly publication. Called “What’s the Deal?” our new section will focus on opinions and analysis of the impact and direction of China cross-border M&A trends.
In our view, current trends in global M&A merit consistent monitoring, analysis, and executive attention, particularly with respect to China. Many large investment flows that fund acquisitions of major incumbent enterprises and potentially disruptive start-ups, and the common consolidation of assets into mega-conglomerates that result, are not neutral changes in ownership but are often core components of major shifts in geo-economic actors and goals. Especially since the global financial crisis, China has often proven that it has the capability of mobilizing massive resources to undertake some of the largest acquisitions abroad ever undertaken, and China has also indicated unambiguously that outbound direct investment is an important piece of its future growth strategy at a national level. Tracking this growth trend has long been at the core of our mission in publishing the China M&A Round-Up newsletter.
At a more granular level, almost every sector that is hot in terms of M&A—health care, ecommerce, energy and resources, hospitality, financial services, to name a few—is experiencing transformation that can offer major incumbents and their challengers opportunities and risks that they should understand and address to help assure not only future growth and prosperity but in many cases their own survival.
We believe that the impact of China’s newly intensified focus on its global roles and relationships not only implies continued robust pursuit of global M&A, but will likely reach far beyond the immediate impact of specific, individual M&A initiatives. The landscape, broadly viewed, for engaged governments, investors, and competitors appears to be changing at an accelerating pace, and China’s M&A activity is often a dynamic force influencing many of the most significant global developments.
We also believe it is useful to analyze these changes from two perspectives, one in terms of global market share shifts reflected in the rise and fall of goods and service providers, and the other in terms of control of core enablers, often technologies, that are reshaping value chains, restructuring key markets, and relocating profit pools associated with them. Market share shifts are typically driven by major changes in equity ownership and governing control of established business operations and assets in real estate, natural resources, consumer brands, retail services, and similar sectors. Value change shifts are commonly driven by acquired capabilities in core, disruptive technologies, like micro-electronics, AI, new energy, Blockchain, mobility and communications, and new manufacturing, for example.
Our most recent annual data, from 2016, demonstrates that China is a major player in global M&A measured by volume and values of acquisitions abroad. But China’s role in M&A markets is not only unique as measured by growth rate or numbers of deals and total values. China’s growing engagement in global M&A has brought much more into view.
China’s domestic economy, especially the regulatory and financial systems that govern business activity and capital investment, has numerous unique Chinese characteristics, seen through non-Chinese MNC eyes. These characteristics have often accounted for both successes and failures during the past 35 years of China’s opening and reform. We have now seen these characteristics typically reflected in the M&A activity of Chinese investors abroad. They are not only part and parcel of the obvious, measurable growth and scale of Chinese M&A abroad. They are part and parcel, albeit less obviously, of the target selection processes, strategic intent, commercial calculus, and valuations that help guide the activities of Chinese investment outside the Chinese mainland. Even less obvious are the dynamics that may determine what entities in China have been and will likely continue to be major players on the global M&A battlefield.
Among the external events, in our view, that are critical for our clients to follow and understand, few are more important than the topics we have raised here and plan to explore in this column. We very much hope to see you and hear from you in the future.
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