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 Asia-Pacific M&A totaled $1.2 trillion so far this year, up 46
percent from last year, preliminary data from Thomson Reuters
showed, as China rediscovered an appetite for outbound deals after
2014's 20 percent drop. With private companies like Fosun
International Ltd in the vanguard, Chinese firms spent a record $102
billion so far in 2015, the data shows.
As well as economic growth slowing to its weakest pace in years,
bankers and analysts say a need to acquire cutting-edge technology
to improve manufacturing, environmental issues and a weakening yuan
will all help send Chinese firms like chipmakers and agrochemicals
suppliers searching for deals overseas next year.
"China is on the move, we are preparing for a busy year for deal
making," said Joseph Gallagher, head of M&A for Asia Pacific at
Credit Suisse. "Chinese outbound activity is set to pick up with a
focus on the semi-conductor, power and financial sectors," Gallagher
added.
A strong year for deal-making bodes well for global investment banks
in the region. This year, Goldman Sachs was the top adviser with a
16.7 percent market share, followed by Morgan Stanley and HSBC
Holdings, surging from 28th rank in 2014 after working on a slew of
deals from billionaire Hong Kong tycoon Li Ka-shing.
China, Hong Kong and Australia were the three most active M&A
markets in Asia Pacific, the data showed.
China's large state-owned enterprises (SOE) played a less active
role in 2015's M&A compared to their mid-2000s heyday as President
Xi Jinping's wide-ranging anti-graft investigations turned several
official cautious about making big decisions, bankers said.
But Beijing ardently backs deals in niche areas like semi-conductors
and agrochemicals, bankers said. A prime example it state-backed
Tsinghua Unigroup Ltd: It plans to invest 300 billion yuan ($47
billion) over the next five years in a bid to become the world's
third-biggest player in chipmaking, muscling its way into a trio
made up of Intel Corp, Samsung Electronics Co Ltd and Qualcomm Inc.
SLOWING GROWTH, RISING COMPETITION
Among the deals Chinese companies are currently working on are
energy and waste treatment investment firm Beijing Enterprise
Holdings Ltd's pursuit of German waste management company EEW in a
deal potentially worth about $1.8 billion.
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Media reports have also said that state-owned China National
Chemicals Corp is weighing a possible bid for European agrochemicals
maker Syngenta AG, which has a market value of $35.1 billion.
ChemChina, as the company is widely known, declined to comment..
China's weakening currency, forecast to slip a further 5-7 percent
next year, would also encourage more money to leave China, analysts
say. This follows a surprise decision by Beijing in August to
devalue its currency 3 percent.
"The weakening yuan coupled with a slowdown in the domestic market
is a strong driver for China outbound M&A, factors that had driven
Japan outbound M&A for the last five years," said Mayooran Elalingam,
head of Deutsche Bank's Asia-Pacific M&A in Hong Kong.
Bankers also expect more M&A among Chinese companies, especially
technology firms, as the slower economic growth and intense
competition force companies to pursue new avenues for revenue
growth.
"The SOE reforms and domestic industry consolidation are the other
themes likely play out strongly next year," said Brian Gu, co-head
of Asia-Pacific M&A at J.P. Morgan in Hong Kong.
"As growth shrinks in many sectors, you will see companies moving in
to drive consolidation and becoming aggressive in some situations,
something which is emerging as a new theme in China," he added.
(This story corrects title of banker in penultimate paragraph to
co-head of Asia Pacific M&A from co-head of China Investment
Banking)
(Additional reporting by Umesh Desai; Editing by Kenneth Maxwell and
David Goodman)
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