Record breaking M&A in China beats 2015 with six months to spare
In just six months, China has already beaten its outstanding M&A record in overseas deals from 2015. Last year, Chinese investors put forwards $111bn within foreign M&A deals and have, so far, spent $111.6bn in 2016.
Contributing to almost 40 per cent of this year’s figure was the $43bn bid for Swiss Syngenta by China National Chemical Corp (ChemChina). The deal marked the largest ever foreign purchase by a Chinese firm, however, even without ChemChina’s record acquisition the appetite for international deal making in China has picked up some serious momentum.
Other high profile deals have included the $6.3bn acquisition of Ingram Micro by HNA Group and the $5.4bn bid for GE’s appliance business by Haier. In addition, China’s Midea is currently in talks to purchase German industrial robot maker Kuka for $5.1bn.
Despite the speedy start to the year’s M&A activity, industry experts anticipate that while deal making will remain strong throughout the rest of the year, it will not match the record heights of the first and second quarters. Predictions from China Investment Capital estimate that deal making is likely to reach $150bn by the end of 2016, which remains a record-breaking figure, however is indicative of a significant slowdown throughout the second half of the year.
This slowdown comes as industry eperts warn that many mainland Chinese investors are facing increased scrutiny from overseas. For example, Midea’s announcement of its intention to purchase Kuka sparked uproar in Germany, with the company forced to reassure critics with a guarantee that local jobs and facilities will not be affected.
In addition, Chinese investors themselves are eager to slowdown deal making, in an effort to moderate the outflow of its foreign reserves which dropped by more than $0.5tr in 2015. Currently reserves stand at $3.19tr, however experts have raised concerns over how the influx of M&A activity will weigh on the Yuan. External factors such as the UK’s Brexit and the US presidential election have also created some uncertainty around entering foreign markets.
Despite the expected slowdown, Chinese foreign deal making will remain comparatively strong, as a number of Chinese companies seek to diversify their offerings and manufacturing processes by acquiring overseas technology as domestic growth has slipped to a 25 year low. With this in mind, Chinese appetite for investment remains robust, however we can predict that the third and fourth quarters of 2016 will not see the same level of deal making as the first six months.
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