Deal activity down from a record year, but overall trend positive – PwC’s M&A 2017 Review and 2018 Outlook

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Volume of transactions is second highest ever, with 14% increase in value of domestic strategic deals.

Hong Kong, 23 Jan 2018 - China’s M&A activity in 2017 was down 11% in value terms compared to the record highs of 2016. At US$671bn, the total value of deals was roughly equal to the previous record set in 2015. This was largely attributable to a reduction in Mainland China outbound deals, according to PwC’s M&A 2017 Review and 2018 Outlook.

“While deals are down by both value and volume compared to a bumper 2016, the trend is still strongly upward on a five-year view,” said David Brown, PwC China and Hong Kong Transaction Services Leader. “The number of deals was the second highest ever, as all of  the main medium-to-long term drivers of M&A activity are still in place.”

The value of deals declined for the China outbound, foreign inbound and financial buyer segments. But the overall total was supported to some extent by a 14% increase in the value of domestic strategic deals.

The number of mega-deals (those with a value in excess of US$1bn) declined from 103 in 2016 to 89 last year. This fall was accounted for entirely by China outbound deals.

“The government’s policy guidance on outbound deals has had an undoubted effect,” said Mr Brown. “There has been a re-focussing on strategic outbound deals and away from passive or trophy assets. That said, the total value of outbound deals still exceeds 2014 and 2015 combined.”

Technology, industrial and consumer products continue to be the main sectors targeted in outbound deals. The main aim is to bring technologies back to the domestic market in order to upgrade the industrial base, as well as to introduce new IP, brands and products to China.

Traditional private equity and venture capital fund-raising continued a strong upward trend in 2017. But this does not capture the full amount of capital made available by so-called ‘Big Asset Management’. This comprises the investment arms of large corporates and SOEs, financial institutions and government-backed funds. The Asset Management Association of China reported US$1.5 tr of assets under management by PE funds at the end of 2017 – a seven-fold increase over the last three years.

“Last year was also noteworthy for a long-anticipated increase in exit activity,” said Christopher Chan, PwC China & Hong Kong Advisory Partner. “There was a record number of PE-backed IPOs and trade sales. Shenzhen and Shanghai were the favoured venues, because of higher valuations.”

Looking forward, the report expects some increase in M&A activity in 2018, bringing the level close to – or possibly exceeding – 2016. With greater policy clarity, outbound M&A will resume its growth trend. PE and financial buyer activity, both domestic and outbound, will also increase under pressure to defray large amounts of capital.

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Peter Craughwell
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