23 August 2019
Christopher Chan, PwC China and Hong Kong advisory partner, says private enterprises are looking for new markets overseas as China's economy slows down. Photo: HKEJ
Christopher Chan, PwC China and Hong Kong advisory partner, says private enterprises are looking for new markets overseas as China's economy slows down. Photo: HKEJ

SOEs to see slower M&A deals amid focus on reforms

China’s state-owned enterprises are likely to contribute less to outbound merger and acquisition activity this year as they focus on reforms, accountancy firm PricewaterhouseCoopers said on Tuesday.

Still, Chinese private enterprises are expected to remain active in outbound M&As in the second half as they strive to expand and gain more knowhow overseas.

Leading the activities would be private firms in high-growth industries such as telecommunications, technology and real estate.

“They are looking for new markets overseas as a source of inorganic growth at a time when China’s economy is showing signs of slowing down, although they are interested in domestic brands,” said Christopher Chan, PwC China and Hong Kong advisory partner.

Meanwhile, deals involving state-owned enterprises (SOEs) are expected to slow down focus on domestic reforms, Chan said.

M&A deals in the first six months grew 19 percent to US$183 billion from the second half of last year, with 30 of the deals larger than US$1 billion.

“The activity in the first six months was strong thanks to growing competition for assets prompted by industry consolidation, inorganic growth and SOE reforms, while many of the deals are big in size as well,” said David Brown, PwC China and Hong Kong transaction services leader.

The major deals were mainly seen in the internet and financial services sectors. There was also strong activity in the real estate sector as Chinese developers sought access to capital markets through backdoor listings, Brown said.

Law firm Paul Hastings earlier said it expects outbound acquisitions to occur in hot sectors like property, telecommunications and agribusiness as investment targets have switched to gaining foreign market access, acquiring technology and food security instead of securing natural resources.

It added that the risk of failing to seal the deals has been greatly reduced after the Chinese government relaxed the rules. The new rules announced in May said only deals valued at more than US$1 billion will require a full review by the National Development and Reform Commission, and this means less delays and less uncertainty, the firm said. 

This has also created a level playing field for Chinese bidders vis-a-vis those from other countries, Paul Hastings said in a statement in late JulyThe State Administration of Foreign Exchange is expected to issue its long-awaited rules on cross-border securities soon, providing structured financing for M&A deals.

Meanwhile, private equity-backed initial public offerings rebounded in the first half, although the volume of trade sales were lower than anticipated, PwC said, without providing figures.

“Deals will remain robust in the second half and Chinese private-equity (PE) firms are competing for assets overseas with a demand for equity capital in the country,” Brown said. “More PE participation in SOE reform is expected to be seen.”

The value of new investments of PE firms hit a record high in the first half, with nine deals larger than US$500 million, the accountancy firm said.

– Contact the reporter at [email protected]


Ayishah Ma is a financial reporter on Greater China issues.

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