January 15,2010

China and HK M&A: Strong 2009, Stronger 2010

By CSC staff, Shanghai

With Corporate China's hunger for oil/gas and resources, cash-rich balance sheet, as well as its domestic consolidation and outbound investment, the M&A was up 6.5% in China and Hong Kong in 2009 despite the downturn in global M&A activities. And 2010 will keep the aggressive momentum given Chinese government's determination to restructure its industries and economy. 

According to mergermarket, an independent Mergers and Acquisitions (M&A) intelligence service, Chinese financial advisory firms are also growing fast along with the explosion of outbound investment.

Chinese and Hong Kong M&A up 6.5% by volume 

Despite the downturn in global M&A activity in 2009, China and Hong Kong closed the year with the third most active M&A quarter on record. The 223 deals announced in Q4 2009 helped bring the total M&A volume for the year to 749 deals, an increase of 6.5% on 2008's total. The year's total deal value of US$130.8bn, while representing a 15% drop from the US$154.3bn record in 2008, was still relatively strong, in the context of a decrease in global M&A value of 27% over the same period.

Inbound value halved; outbound value tops previous record

With little credit available to overseas buyers, inbound M&A deal value into China & Hong Kong nearly halved in 2009, with only US$11.1bn of capital inflow via inbound M&A compared with US$22.1bn in 2008. On the other hand, cash-rich Chinese bidders pushed outbound deal value to a new annual record of $37.7bn, up from the previous record of US$34.6bn in 2008.

Inbound M&A deal volume still outpaced outbound M&A deal volume for the year, though the gap between inbound and outbound deal volumes narrowed from 95 deals in 2008 to only 32 deals in 2009.

Energy, Mining & Utilities sector dominates top deals

The ever-increasing demand for energy and natural resources in China was a catalyst for many deals within the Energy, Mining & Utilities sector in China & Hong Kong. Whether as domestic consolidation or outbound investment, the sector continues to contribute much of the M&A deal flow in the region, including seven of the top 10 deals involving Chinese companies in 2009 (including lapsed and withdrawn deals).

Advisory league tables led by CITIC Securities and Commerce and Finance Law Offices

The two largest Chinese investment banks, CITIC Securities and CICC, maintained their top spots on the financial advisory league table by value for 2009, though the two firms had swapped places with each other. Hong Kong's Guangdong Securities jumped 50 places to the top of the mid-market rankings by value with 11 deals worth US$1.25bn, while local peer Somerley edged out Optima Capital to be the most active mid-market financial advisor.

Boosted by its advisory on some of the largest Chinese deals in 2009, Commerce and Finance led the legal advisory league table by value. On the mid-market legal advisory rankings, Baker & McKenzie and Haiwen & Partners captured the top two places both by value and volume, displacing King & Wood which dominated the mid-market charts in 2008.

2010 outlook: momentum continues on economic recovery and government policies

Driven by the expected recovery of the global economy and Chinese government policies, Chinese M&A is anticipated to become even more active in 2010, especially in sectors such as automotive, energy and mining, and steel. The Chinese auto-industry will see a further consolidation among regional medium and small auto-manufacturers, while the outbound acquisitions of Volvo by Geely, and the Hummer brand by Sichuan Tengzhong Heavy Industrial Machinery are expected to complete in 2010.

On the regulatory front, the Chinese government is expected to issue new laws for further development of the domestic capital market in 2010, encouraging the establishment of RMB funds, which would speed up consolidation in different industries.

 

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