M&A deals decline in China
In spite of a 14% growth during the first six months, when over 920 merger and acquisition deals worth $46 billion were transacted in that period, there have been only 543 M&A deals announced in this period.
Based on a report from accounting firm PricewaterhouseCoopers, the M&A deals have decline nearly 47% from July to November.
The accounting firm expects the situation won’t change in the first half of 2009 as pricing expectations align.
According to Xie Tao, PricewaterhouseCoopers Transactions Partner in Beijing, M&A deals fell dramatically in the second half of 2008, on compounding domestic issues and the global economic crunch.
Xie added that domestic factors such as regulatory policies to deal with high inflation, interest rate hikes and development of new labour laws are followed by the effects of the global economic crisis hitting China.
The report shows that despite the drop in activity, the number of deals tell us manufacturing is still the most active sector, while real estate is the biggest sector by real value.
Chinese companies still have the support of money and government to invest abroad. But due to the global crisis, they choose to take no action. That’s why overseas deal volume fell 29% in the second half of the year, with only 32 transactions.
It remains high interest in overseas acquisitions from Chinese companies, so more deals are expected to execute sometime in 2009, said Xie.
It is believed that the economy in China would be recovered gradually, as it seems to be better more quickly than other countries.
As in the previous couple of years, the main industries for Chinese acquisitions overseas were still mining and financial services, with 22 and 9 deals transacted in 2008. Deals were also clinched in hi-tech industries like medical equipment, hardware, software and biotechnology.
Xie said that this reflects the increased level of maturity in Chinese economy and the shifting of China’s focus to other industries that can get more value to accelerate the country’s economic growth.
Strategic buyers are waiting for the current situation becoming better and carry out their plans in the second half of 2009.
During the process of planning their deals, buyers are also waiting to see whether things turn around and to preserve cash for their ongoing deals through the financial crisis.
Private equity buyers with cash for acquisitions will consider buying opportunities as valuations decrease and alternative sources of capital dry up. But with sellers reluctant to sell in a declining market, there could be a “valuation gap” that needs to narrow before PE activity can pick up again, said Xie.
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