Trends in M&A

China outbound deals: 2014 first-half update

The strong growth in China’s outbound mergers and acquisitions anticipated at the end of last year has emerged, with $32.1bn worth of deals announced in the first six months of 2014, up 40% on the previous half.

More than a third of the investment was in high-tech, telecommunications and real estate. In the previous four halves these sectors accounted for only 1% of China’s total outbound M&A.

Our latest Trends in M&A report finds:

  • The level of deal activity from privately owned enterprises (POEs) more than tripled from the previous half.
  • Australia saw deal values increase from $1.7bn in the second half of last year to $2.4bn in the first six months of this year, a rise of 42%.
  • China's M&A in Australia was highly concentrated in the mining and minerals sector.
  • Significant investment in real estate and infrastructure was noted however that was not in the form of corporate M&A.

Outlook

A free trade agreement with China encompassing higher Foreign Investment Review Board (FIRB) approval thresholds and an easing of the current thresholds for State-owned enterprises (SOEs) will be welcome news and a positive catalyst for Chinese investment in Australia.

We expect robust levels of outbound M&A to continue and three trends to feature over the next half of 2014:
  • Increasing diversity in China’s foreign deals. In Australia we expect expansion into consumer sectors, and investment in real estate and infrastructure.
  • Increasing number of deals from POEs driving deal growth and diversification and more strategic investment in natural resources expected.
  • SOEs will continue to be an important source of capital but the current focus on domestic reform may slow growth in SOE deal activity in the short to medium term.
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