Alibaba’s well publicized acquisition of the South China Morning Post earlier this month capped an active year for mergers and acquisitions in the Chinese TMT (technology, media and telecom) sector.
The deal followed the e-commerce giant’s move on Youku Tudou in November.
Other companies such as China Media Capital and Ctrip.com also showed an appetite for growth with significant investments and acquisitions.
Looking ahead to 2016, we expect more activity and interest in the TMT industry.
There has been a great deal of discussion as to whether domestic consumption will grow significantly next year.
However, even if consumption slows, an ever greater proportion of consumption from an expanding middle class is moving online, which should support a wide array of TMT companies in their 2016 development plans.
It is a sector that tends to have comparatively short growth cycles, so a lot can happen in 12 months.
Domestic consolidation will play a significant role.
However, we expect outbound acquisitions to increase both in number and size.
In response to maturing Chinese consumer preferences and desire for greater access to foreign markets, China’s leading TMT players will continue to hunt for new opportunities and intellectual property abroad.
The vast majority of targets will have an impact on the growing TMT sector.
Fosun’s acquisition of Cirque du Soleil in April this year is a classic example.
Having bought the world’s largest theatrical production company, Fosun will bring permanent and traveling Cirque du Soleil shows to China and benefit from new and wider audiences.
Also, China Media Capital’s US$400 million investment in City Football Group earlier this month will allow both parties to capitalize on the increasingly insatiable appetite for football in mainland China.
Integration will be important after next year’s anticipated TMT acquisition spree and might be a challenge for Chinese buyers.
It remains to be seen whether the new owners can successfully manage acquired TMT assets from halfway around the world.
Once the volume of acquisitions increases, disputes and post-closing integration problems might arise, with the lack of international management experience of some Chinese boards likely to be a key reason.
Another challenge Chinese buyers might face is the regulatory environment in foreign markets.
For example, the US has stringent copyright protection laws and regulations on the export of technology which could pose hurdles for Chinese acquisitions.
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