Chinese seal nearly one-sixth of M&A deals
China has claimed its largest quarterly share of global mergers and acquisitions on record, with mainland companies’ takeovers of their foreign rivals accounting for almost one-sixth of all deal activity.
Led by a host of aggressive and politically-connected acquirers — such as ChemChina, Dalian Wanda and Anbang Insurance — Chinese companies have emerged as a dynamic force in dealmaking in a number of sectors. Their choice of target companies also highlights China’s attempt to serve its growing consumer class, as it copes with sharp declines in its stock market and economic growth prospects.
Of the $682bn in global deal activity in the first three months of 2016, $101bn, or 15 per cent, of that figure involved Chinese buyers, according to Thomson Reuters data. At this level, the value of outbound Chinese deals has already nearly eclipsed the previous annual record of $109bn, recorded over the whole of 2015.
Colin Banfield, head of mergers and acquisitions at Citigroup in Asia-Pacific, said: “The global M&A landscape has been transformed by the wave of Chinese outbound M&A deals in first-quarter 2016.”
This rapid rise has astounded western dealmakers, many of whom were caught off-guard by the surge — and wince privately that Chinese buyers are among the most frugal when it comes to paying banking fees.
Advisers and analysts have attributed part of this boom to broader concerns over the stability of the renminbi, China’s currency, and suggested that the rapid pick-up in deals in some ways resembles capital flight.
But, at the same time, dealmakers say Chinese acquirers have improved their credibility in negotiations. They have been aided by an abundance of easy borrowing from China’s state banks, which remain eager to approve loans for assets often deemed safer than those based in China, given a slowing domestic economy.
Deals in the quarter included the biggest ever Chinese takeover of a foreign company, when ChemChina, the sprawling chemicals group, agreed a $43.8bn all-cash deal to buy Swiss agribusiness Syngenta.
Strong Chinese dealmaking has eased a severe slowdown in overall M&A activity, which suffered a sharp 57 per cent drop, quarter on quarter, after an unprecedented $1.6tn worth of transactions in the last three months of 2015. In annual terms, the decline in first-quarter deal value was 14 per cent.
US M&A activity dropped off most sharply: $256.6bn worth of deals represented a 29 per cent fall from a year earlier and ranked as the lowest level of any quarter in nearly two years. In Europe, activity was modestly higher at $181.6bn.
“The sheer volume of Chinese deals highlights the sharp decline in M&A otherwise,” said Alain Klein, a partner at Simpson Thacher & Bartlett. “Chinese companies have a bigger share of the overall volume simply because there were fewer deals globally. It is striking to see the fall in activity in the US. It may be perfectly natural after last year’s frenzy but still it’s remarkable.”
Roy Kabla, European head of telecoms, media and technology for Nomura, said: “The dealmaking may seem aggressive by western standards. But many Chinese buyers continue to enjoy relatively attractive cost of capital versus western players, and can leverage these assets against the growing consumer class . . . Dalian Wanda is an interesting example of that dynamic in the cinema and sport areas.”
Wanda, a real estate and leisure conglomerate, bought Legendary Entertainment, the California-based media company behind blockbuster films “The Dark Knight” and "Jurassic World", for $3.5bn, as well as US movie group Carmike Cinemas for $1.1bn, during in the quarter.
“China is buying what it wants instead of just what it needs,” said Stephen Williams, head of capital financing for Asia-Pacific at HSBC. “This has led to a much broader trend in outbound acquisitions, where private companies have joined the state-run ones in targeting assets abroad.”
Chinese companies are also becoming bolder in challenging already agreed transactions. Most notably, an investor consortium led by Anbang Insurance, a Chinese wealth management group, launched a $14bn bidding war against Marriott International for Starwood Hotels & Resorts.