2017 Special Report on China Cross-Border M&A Forward Rupert Hoogewerf Hurun Report Chairman and Chief Researcher

It is a great pleasure for me to share with you the 2017 Special Report on China Cross-Border M&A, jointly issued by the Hurun Report and DealGlobe. As one of the fastest growing economies in the world, China’s companies have been able to accumulate great financial wealth in the past 5 years. Because of this, and because of the country’s growing push towards internationalization, Chinese entrepreneurs are spending more and more time thinking about overseas acquisitions. Therefore, this report on China outbound M&A comes at just the right time. The intention is that this report will allow Chinese entrepreneurs to be more informed as they plan for overseas M&A, while also serving as an introduction to the state of China outbound M&A for those in other countries. For Chinese companies, global expansion is often heavily influenced by government policy. For Chinese entrepreneurs began to think seriously example, the prospect of increasingly strict capital about cross-border M&A after about 2012. The first controls has made many Chinese companies batch of Chinese companies to make significant accelerate their international acquisition plans. In global acquisitions included Anbang, Tencent, 2016, cross-border investment and M&A by Chinese Alibaba, Hainan Airlines and Fosun. As time has firms grew explosively, with volumes increasing by gone by, overseas M&A has increasingly become a over 20% and values by nearly 150% versus 2015. hot topic of discussion in Chinese entrepreneurial Clearly Chinese companies have entered the era of circles. The possibility of RMB depreciation has made internationalisation. Meanwhile, the Belt and Road foreign assets highly attractive for many Chinese Initiative, a programme of Chinese investment into companies. Moreover, following years of growth and Eurasian countries along the ancient Silk Road, increasing sophistication in their operations, many brings great opportunities. As part of this initiative, Chinese companies have now reached the stage many more Chinese companies will enter the global where going global is the next logical step. investment and M&A market. As they complete more transactions and grow in sophistication and When I first met Mr Lin Feng of DealGlobe, he familiarity with international practices, the influence impressed me greatly with his depth of knowledge of Chinese companies will be felt ever more strongly of China cross-border M&A. His firm, DealGlobe, in the world of M&A, paving the way for greater is an outstanding financial advisory business, with integration of the Chinese economy with the rest a seasoned team that includes of a number of of the world, and greater global engagement with senior bankers in London whom I know very well. China. When Lin proposed working together to publish a research report on China outbound M&A, I was The 2017 Special Report on China Cross-Border quickly convinced of the idea. Chinese companies M&A contains a wealth of useful information. The have a clear need for data and analysis that can idea is for the report to be used as a guidebook allow them to better plan for overseas M&A. In the for Chinese companies and entrepreneurs that are past, advisors have focused on helping foreign interested in cross-border investment and M&A but conglomerates enter China. But now I am very glad lack familiarity with the subject. to see that in just a few years, Chinese companies have begun to expand significantly their operations I hope this research report may help you and your and investments abroad. company go global. Happy reading!

2 Contents

02 Forward

04 Welcome

05 Part 1: Market Analysis

09 Part 2: Industries

10 Part 3: Geographies

14 Part 4: Buyers

18 Part 5: Regulation

21 About DealGlobe

22 About Hurun Report

3 Welcome Lin Feng Founder and CEO of DealGlobe

The explosive growth of Chinese cross-border M&A in 2016 has verified our prediction three years ago when we founded DealGlobe. In the past year, DealGlobe has advised on a total of over $2.6 billion in announced transactions between Chinese and Western companies

In 2016, Chinese outbound investment and M&A The explosive growth of Chinese cross-border grew explosively in terms of both transaction M&A in 2016 has verified our prediction three amount and volume versus the previous year. As years ago when we founded DealGlobe. In the more and more listed companies and private equity past year, DealGlobe advised on a total of over funds become cross-border investors, and as $2.6 billion in announced transactions between China’s capital markets become increasingly mature, Chinese and Western companies. But at the same cross-border deals are becoming bigger and more time, we are also aware that the majority of Chinese complex. China cross-border M&A has become a companies are still just beginning their exploration hot topic of discussion in the media and among of international M&A. Most Chinese buyers are still the public. From Wall Street to the City of London, inexperienced and face many challenges. Therefore Chinese buyers have quickly become a significant in this report, for their benefit, we have provided a presence in global M&A. summary of the recent trends in China cross-border M&A and shared some of our experience. DealGlobe was founded in 2014. At that time, there was already a feeling that China cross-border M&A In 2017, there have been a number of changes to the was on the edge of something big. But back then, regulatory environment for China cross-border M&A, most Chinese companies were at a stage where leading some Chinese companies to worry whether they dared to think but not to act – they wanted they will still be able to get deals done. From our to participate in overseas M&A but struggled to observations, though cross-border M&A transaction find appropriate targets or lacked the support of volumes have declined a little in the first half of this professional teams to advise them. We have built year, underlying demand from Chinese companies DealGlobe based on this demand. Firstly, we have remains as strong as ever. Many in China are simply established a Chinese online platform for cross- biding their time waiting for the regulatory winds border M&A intelligence, and secondly, we have to change. There are encouraging signals that they assembled a team of experienced investment will do so soon, including the recent appreciation banking professionals to advise both Western and of the RMB and continued growth in China’s Chinese clients on China cross-border deals. foreign currency reserves. We believe, in the long term, investment by Chinese companies in global opportunities will only grow. The best is yet to come.

4 Section: 1 Part 1: 2016 in Review Market 2016 witnessed huge growth comparatively less affected, in both the volume and value providing the backdrop for of Chinese cross-border M&A. China outbound M&A activity to Analysis Over the year, 438 cross-border steadily increase. In 2016, activity transactions were announced by hit a peak. The spike in value Chinese companies, an increase is due partly to megamergers of 20% versus 363 in 2015. The (including ChemChina’s total announced transaction acquisition of Syngenta). value was USD 216 billion, an increase of almost 150% on 2015’s USD 87 billion.

After the global financial crisis in 2008, cross-border 2016 witnessed explosive growth M&A by Chinese companies in both the volume and value of began in earnest. While many Chinese cross-border M&A Note The raw data for this report has been organisations in the West sourced from MergerMarket and Capital IQ. were heavily affected by the M&A statistics include disclosed deal values for transactions above USD 5 million. crisis, China’s economy was

2016 China Outbound M&A Volumes and Value

Volume Value (USD billions) 216

87

69 68 438 61 60 58 363

35 32 269 225 177

23 170 131 98 88 88

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Source: MergerMarket, Capital IQ, third-party public information, DealGlobe-Hurun analysis

5 Search for Growth

Government Search for IP Influences Main Drivers of Chinese Outbound M&A

Easy Access Boosting the to Financing Stock Price

Section 2: Drivers counterparts in many areas. To become more competitive globally and at home, the acquisition of leading foreign brands and technologies is often 1 Search for Growth quicker and easier than developing these internally. As China’s economy has matured, domestic As Chinese consumers become more wealthy and competition has increased and growth has begun more demanding, Chinese companies cannot rely to slow, increasing the attractiveness of foreign on local knowledge alone to protect and grow markets for Chinese companies. Acquiring overseas domestic market share. companies, especially their brands, channels and teams, can be a shortcut to accessing foreign 3 Boosting the Stock Price markets. Lenovo famously developed into a global brand by acquiring IBM’s PC business. In recent years, a large number of Chinese companies have gone public as China has vigorously pushed the development of its domestic capital 2 Search for IP markets. Such companies are often keen to boost Although China’s companies have made good their share price by acquiring attractive businesses. progress in the sophistication of their products As high-quality targets become rarer in China, many and services, they still lag behind their Western companies have begun to look abroad.

6 4 Easy Access to Financing Section 3: Big Deals As Chinese outbound M&A has developed, In 2016 Chinese companies announced 51 deals with a range of inventive financing options have transaction value over USD 1 billion, almost twice become available, including bank loans at home the number in 2015 (27). Average announced deal and abroad secured against RMB assets, private size grew from USD 240 million in 2015 to USD 492 bond placements, equity swaps, and other million in 2016. creative solutions. This has led to a virtuous cycle, encouraging other companies to consider With size often comes complexity, therefore outbound M&A that may not have had the resources this is an indication of the gradually increasing previously. sophistication of Chinese buyers and their transactions (though we note that many of the 5 Government Influences largest deals of 2016 are yet to close).

The development of Chinese outbound M&A is At the end of 2016 the Chinese government began closely related to government policy, which can to scrutinize cross-border deals over USD 1 billion either hinder or encourage the acquisition of foreign much more closely, and we expect that Chinese assets. Recent, short-term capital controls excepted, buyers will tend to avoid such large deals in the the Chinese government strongly supports Chinese short-term for fear of them being blocked by companies “going global”, and in particular the use Chinese regulators. of M&A to allow Chinese companies to develop their competitive strength. President Xi's Belt and Road initiative will also drive Chinese outbound M&A. Getty Images

7 Top 20 China Cross-Border Transactions in 2016

Transaction Location Industry Announcememnt Rank Buyer Value (USDm) Target of Target of Target Date Description

February Leading global agricultural technology 1 ChemChina 43,000 Syngenta Switzerland Agrochemical 2016 company State Grid July 2 Corporation 12,400 CPFL Energia S.A. Brazil Infrastructure Brazil's largest private power company 2016 of China

CIT Group Aircraft October One of the top 10 aircraft leasing 3 9,995 USA Finance Bohai Capital Leasing Assets 2016 companies in the world

Majority stake June Publisher of mobile games Hay Day and 4 Tencent 8,600 FInland TMT in Supercell 2016 Clash of the Clans

AnBang Strategic Hotel March Owner of upscale luxury hotels and resort 5 Insurance 6,500 USA Real Estate 2016 properties Group & Resorts Inc. Stake in Hilton October World-famous hotel and resort property 6 6,496 Worldwide USA Entertainment HNA Travel 2016 operator Holdings

Tianjin Tianhai Ingram Micro February 7 6,009 USA TMT World's largest distributor of IT products Group, etc. Inc. 2016

GE appliance Consumer January 8 Haier Group 5,400 USA Well-known US white goods brand business goods 2016

Giant Group Playtika Holding July 9 4,400 Israel TMT Mobile games developer et al. Corp 2016

Media Group Industrial May 10 4,200 Kuka Germany Leading industrial robot manufacturers et al. Manufacturing 2016

Hubei September Major manufacturer of agrochemicals 11 3,936 ADAMA Israel Agriculture Sanonda 2016 globally

January 12 Wanda Group 3,500 Legendary Pictures USA Entertainment Independent film production company 2016

Zhuhai Lexmark April Developer and producer of laser printers 13 3,440 USA TMT Apexmic et al. International Inc. 2016 for business users

Daily Tech, Avic 51% stake in Global December Europe's largest third-party data center 14 Trust, Shagang 2,750 UK TMT Group, etc. Switch Limited 2016 operator NXP's Standard Beijing June 14 Jianguang Asset 2,750 Products Netherlands Semiconductors Top ten global semiconductor company 2016 Management Department

Oceanwide October 16 2,700 Genworth Financial USA Finance Leading US insurer Holdings 2016

China 56% stake in Tenke Congo November One of the world’s largest copper and 17 2,650 Commodities Molybdenum Fungurume Mining (Kinshasa) 2016 cobalt mines

September 18 2,487 Urbaser Spain Environmental Urban and waste services provider China Tianyin 2016

Shanghai 66.4% stake in October 19 2,342 Pakistan Commodities Major power supplier in Pakistan Power K-Electric Ltd 2016

China Industrial August Leading manufacturer of aluminum rolled 20 2,330 Aleris Corportion USA Zhongwang Manufacturing 2016 products

Source: MergerMarket, Capital IQ, third-party public information, DealGlobe-Hurun analysis

8 Part 2: Industries

Beyond high technology, Chinese Top Ten Industries for China Cross-Border M&A in 2016 companies are keen to participate in and benefit from China’s so

Rank Industry Number of transactions called “consumption upgrade”, the increasing sophistication of the demands of Chinese 1 Industrial Products and Services 36 consumers. The entertainment 2 Financial Services 32 and media industries have therefore become new hotspots 3 Energy 28 for overseas investment. Film- making, special effects, mobile 4 Computer Software 26 internet advertising, computer games and virtual reality assets Leisure 4 26 are in especially high demand. Chinese companies are either 6 Consumer: Other 25 attracted by their stable cash 7 Automotive 21 flows and high profit margins, or by the fact that they are young 7 Computer: Semiconductors 21 companies with huge growth potential. Some firms operating 9 Media 20 principally in “old economy” industries (manufacturing, real 9 Medical 20 estate, etc.) have used acquisitions of foreign entertainment and Source: MergerMarket, Capital IQ, third-party public information, DealGlobe-Hurun analysis media businesses to reposition themselves as “new economy” of Nexen, announced in July companies. 2012, for a total consideration of In 2016, the most active sectors USD 15.1 billion. The transaction Following the global financial for Chinese outbound was completed one year later, crisis, financial services have also acquisitions in terms of deal at the time the largest overseas produced many attractive foreign volume were industrials, financial transaction completed by a acquisition opportunities for services, energy, computer Chinese company. Chinese companies. Many Chinese software, leisure, and consumer companies have acquired overseas But in recent years the focus insurers, commercial banks, has shifted. In 2016, the most securities companies, real estate active sectors for Chinese funds and even fintech companies. outbound acquisitions in terms In the past, the foreign investments of deal volume were industrials, of Chinese companies were financial services, energy, computer focused mainly on the natural software, leisure, and consumer. resources and energy industries. Over the long term, China is a resource-rich country, Chinese companies are now keen Chinese companies hope to but as its population has grown to acquire foreign technology and build their own internal research and its expanding economy management expertise. Over the and development capabilities, has led to increased energy long term, Chinese companies but in the short term, they are consumption, it has needed hope to build their own internal also keen to use M&A to help to look abroad in many cases. research and development them get up to speed quickly, Because of this, large state-owned capabilities, but in the short term, especially in fields like industrial energy companies including they are also keen to use M&A automation, robots, sensors and CNPC, Sinopec and CNOOC have to help them get up to speed new energy vehicles traditionally been the leaders quickly, especially in fields like in Chinese cross-border M&A. An industrial automation, robots, example is CNOOC's acquisition sensors and new energy vehicles.

9 Part 3: Geographies

No.10 Canada No.4 UK

No.1 US

The top ten destinations for Chinese overseas M&A in 2016 were the US, Hong Kong, Germany, Australia, UK, France, Italy, Singapore, South Korea and Canada. Established Western markets are most attractive due to their wealth of strong brands and companies. Hong Kong features highly due to the need in many cases to make acquisitions via Hong Kong Special Purpose Vehicles.

10 No.3 Germany

No.6 France No.6 Italy No.9 South Korea

No.2 Hong Kong

No.8 Singapore

No.4 Australia 2016 Top Destinations for Chinese Outbound M&A

Rank Geography Volume Rank Geography Volume

1 US 84 6 France 16

2 Hong Kong 66 6 Italy 16

3 Germany 35 8 Singapore 15

4 Australia 25 9 South Korea 13

4 UK 25 10 Canada 10

Source: MergerMarket, Capital IQ, third-party public information, DealGlobe-Hurun analysis

11 Top 100 Cross-Border M&A Transactions Announced by Chinese Companies in 2016 (1-50)

Value Rank Buyer Target Enterprise Target Location Target Industry (USDm)

1 ChemChina Syngenta Switzerland Agrochemical 43,000 2 State Grid CPFL Energia S.A. Brazil Energy 12,400 3 Bohai Financial Investment Holding CIT Group’s aircraft leasing assets US Finance 9,995 4 Tencent Majority stake in Supercell Finland TMT 8,600 5 Anbang Insurance Group Strategic Hotel & Resorts Inc. US Real Estate 6,500 6 HNA Tourism 25% stake in Hilton Worldwide Holdings US Entertainment 6,496 7 Tianjin Tianhai Investment et al. Ingram Micro Inc. US TMT 6,009 8 Haier Group GE’s household appliance business US Consumer 5,400 9 Giant Group et al. Playtika Holding Corp Israel TMT 4,400 10 Midea Group Kuka Germany Industrial Manaufacturing 4,200

11 Hubei Sanonda ADAMA Israel Agriculture/food 3,936

12 Wanda Group Legendary Pictures US Entertainment 3,500

13 Zhuhai Apexmic et al. Lexmark International Inc. US TMT 3,440 14 Daily Tech, AVIC Trust, Shagang Group et al. 51% stake in Global Switch Limited UK TMT 2,750

14 Beijing Jianguang Asset Management NXP’s Standard Products Department Netherlands Semiconductor 2,750 16 China Oceanwide Holdings Group Genworth Financial US Finance 2,700 17 Luoyang Luanchuan Molybdenum 56% stake in Tenke Fungurume Mining Congo (Kinshasa) Natural Resources 2,650 18 China Tianying Inc. Urbaser Spain Environmental 2,487 19 Shanghai Electric Power 66.4% stake in K-Electric Ltd Pakistan Natural Resources 2,342 20 China Zhongwang Group Aleris Corporation US Industrial Manufacturing 2,330 21 Weichai Power DH Services Luxembourg Holding US Communication and Transport 2,100 22 Letv Group Vizio US Consumer Goods 2,000 23 Bohai Financial Investment Holding Leasing assets of GECAS US Finance 1,975 Communication and 24 HNA Group Gategroup Switzerland 1,927 Transportation 25 Three Gorges Group 80% stake in WindMW Germany Natural Resources 1,915 26 Beijing Ingenic Omnivision US TMT 1,900 10.5% stake in National Grid Transco’s natural 27 China Investment Corporation UK Natural Resources 1,776 gas business in 28 Ctrip Group Skyscanner Holdings Limited UK TMT 1,770 Landmark office building project in No. 1285 29 China Life US Real Estate 1,650 Manhattan US Avenue 30 BlueSky Group Innvest Real Estate Investment Trust Canada Real Estate 1,634 31 Beijing Companies Group EEW Germany Construction 1,599 Niobium and phosphate businesses of British 32 Luoyang Molybdenum Brazil Natural Resources 1,500 and American resources 33 Joyson Group KSS Holdings Inc. US Automotive 1,444 Communication and 34 Aerospace Science and Technology 97% stock rights of IEE. S.A. Luxembourg 1,424 Transportation 35 Silk Road Fund 9.9% stock rights of Yamal LNG Project Russia Natural Resources 1,400 35 Orient Hontai Capital Applovin US TMT 1,400 37 Minjar Gold Kalgoorlie Super Pit Australia Natural Resources 1,300 37 Canyon Bridge Lattice Semiconductor US Semiconductor 1,300 37 Chinalco Mining Simandou Project Guinea Natural Resources 1,300 40 China Resources Minority stake in Genesiscare Australia Healthcare 1,278 41 Silk Road Fund, Kunlun et al. Opera Norway TMT 1,259 42 China Investment Corporation BGP Germany Real Estate 1,200 42 Three Gorges Group Geracao Paranapanema S.A. Brazil Natural Resources 1,200 42 Wanda Group Carmike Cinemas US Entertainment 1,200 45 Creat Group BPL Holdings Limited UK Biotechnology 1,197 45 Shanghai RAAS Bio Products Laboratory Holdings UK Healthcare 1,197 45 Wanda Group Odeon&UCI Cinemas UK Entertainment 1,197 48 Fosun Pharma 86.08% stock rights of Gland Phanma Limited India Healthcare 1,154 86.08% stock rights of Tenke’s copper cobalt Congo 49 Luoyang Molybdenum Natural Resources 1,136 ore project (Kinshasa) Communication and 50 Ningbo Yinyi Group Punch Powertrain Belgium 1,114 Transportation

Source: MergerMarket, Capital IQ, third-party public information, DealGlobe-Hurun analysis 12 Top 100 Cross-Border M&A Transactions Announced by Chinese Companies in 2016 (51-100)

Value Rank Buyer Target Enterprise Target Location Target Industry (USDm)

51 XIO Group J.D. power and associate US Finance 1,100 51 Beijing Companies Group 20% stake in Verkhnechonsk oil field project Russia Natural Resources 1,100 53 CITIC’s industrial investment fund Biosensors International group limited Singapore Healthcare 1,050 54 ChemChina KraussMaffei Group Germany Industrials 1,014 55 Hainan Airlines CWT Ltd. Singapore Logistics 1,000 Qianhai Financial Holdings and Shenzhen 55 Asia Capital Reinsurance Group Singapore Finance 1,000 Investment Holding Related assets of real estate in group health of 55 Taikang Insurance Group US Real Estate 1,000 NorthStar Realty Finance 55 Alibaba Lazada Group 66.42% stake Singapore TMT 1,000

59 Xiamen International Bank Chiyu Banking Corporation Limited Hong Kong Finance 990

60 Ji’aipu Light Technology GLP German Light Products Germany Industrial Manufacturing 955

61 State Grid Corporation of China 14% stake in EANDIS Belgium Utilities 920

62 Miteno Media.net US TMT 900

63 Nanjing Xinbai All the stock rights of China Cold Blood Corporation Hong Kong Healthcare 878

64 VGRASS Teenie Weenie Korea Consumer 854

65 Huatai Securties AssetMark Financial US TMT 780

66 China Jianyin Investment SGD Phama France Industrial 768

67 ENN 11.7% shares of Santos Ltd. Australia Natural Resources 755

68 CGN Wind power project owned by Gaelectric Holdings Ireland Utilities 751 Rio Tinto’s coal mine assets for 1 billion Australian 69 Yanzhou Coal Mining Australia Natural Resources 749 dollars United Arab 70 China COSCO Shipping Stake in Khalifa Port in Abu Dhabi Logistics 738 Emirates 71 State Grid BCP Meewind Luxembourg Germany Natural Resources 731

72 Xiwang Food Kerr Investment Holding Canada Healthcare 730

73 CEFC CHINA ENERGY KMG International Romania Natural Resources 680 74 Shanghai Jinxin Investment Fund MP & Silva’s controlling interest UK Entertainment 658

75 China Communications Construction IDE Seawater Desalination Technology Co., Ltd. Israel Utilities 650

76 Tahoe Investment 51.5% shares of Alliance Healthcare Services US Healthcare 642

77 China Investment Corporation Port and retail tycoon Asciano Australia Logistics 625 78 Suzhou Dongshan Precision Manufacturing MFLX US Industrial Manufacturing 610

79 Sinochem International 65.73% shares of Halcyon Agri Corporation Limited Singapore Chemical materials 584

Sino-Europe Sports Investment 80 99% stock rights of AC Milan Italy Entertainment 576 Management Co., Ltd. 81 Changchun Sinoenergy Long Run Exploration Ltd. Canada Natural Resources 570 7 hotels located in New York Times Square, Wall 82 Cindat Capital US Real Estate 570 Street and other regions 83 Wuhan Zhengtang The Ribbon Australia Real Estate 557 84 Anbang Insurance Group Some stock rights of Tong Yang Life Insurance Korea Finance 551 85 Humanwell Healthcare Epic Pharma LLC’s 100% stock rights US Healthcare 529

86 Yango Holdings Phoenix Holdings 52.3% stake Israel Finance 514

87 Jilin Jien Nickel Industry RB Energy Inc.’s assets Canada Natural Resources 513 88 Anbang Insurance Group Maple Red Financial Management Candace Canada Real Estate 504 89 Shanhai Capital Analogix Semiconductor US Semiconductor 500 Large-scale office building in City of London, 89 China Life Insurance UK Real Estate 500 Aldgate Tower 91 Midea Group 80.1% stock rights of Toshiba Corporation (TLSC) Japan Consumer 498 92 Shenyang Lianli Copper Industry Copper ore resources in Kazakhstan Kazakhstan Natural Resources 480

93 Capital of Hainan Airlines Manhattan Office Building in New York (850 3rd AVE) US Real Estate 463

94 Yinyi Group ARC Automotive US Automotive 461 Some shares of Chinese businesses in Yum Catering 95 Ant Financial US Agriculture 460 Group 96 Geo-Jade Petroleum Bankers Petroleum Corporation Canada Natural Resources 459 97 MLS Osram’s illumination business Germany Industrial Manufacturing 440 50% rights and interests of Blue Tripod Jeju 98 Blue Tripod International Korea Entertainment 420 Development Co., Ltd. 99 COSCO Shipping 67% stake in Piraeus Greece Logistics 419 Communication and 100 SHARECO 34.9% stake in Global Eagle Entertainment US 416 Transportation

Source: MergerMarket, Capital IQ, third-party public information, DealGlobe-Hurun analysis 13 Section 1: Private M&A offers a fast way to do this, Part 4: especially for companies with Sector Dominance easy access to foreign currency capital. Buyers State-owned enterprises (SOEs) may have been the first Chinese Following the poor performance companies to go global, but in of the Chinese stock market the past few years, more and after 2008, the China Securities more private sector companies Regulatory Commission (CSRC) and private equity funds have began to heavily restrict the begun to take part in overseas number of IPOs allowed each M&A. In fact, over the last five year. This meant that instead years, the majority of deals have of listing independently, many been undertaken by private entrepreneurs sold their sector companies. The trend is businesses directly to public even clearer in the 1st quarter of companies. In the years after the 2017, where 83% of overseas M&A global financial crisis, many listed transactions were led by private Chinese companies therefore companies. gained significant experience of M&A in the domestic market. Another trend to note is the rise More recently however, there of listed companies in Chinese has been a lack of attractive outbound M&A. After going acquisition targets in China, public, Chinese companies often causing listed companies to look feel more intense pressure to abroad for M&A options. become “global businesses”.

Nature of Chinese Cross-Border M&A Participants

Transactions by Transactions by private Transactions by state-owned companies sector companies financial investors 66% 65% 60% 54% 53% 29% 28% 25% 21% 21% 21% 18% 14% 13% 13%

2012 2013 2014 2015 2016

Source: MergerMarket, Capital IQ, third-party public information, DealGlobe-Hurun analysis

14 Valuation arbitrage has made acquisitions of foreign One common arrangement has been for Chinese targets very attractive for listed Chinese companies private capital to acquire an overseas asset with the with comparatively high price-to-earnings multiples. intention to sell this asset to a listed corporate in the The ability to secure acquisition financing via share future. The listed Chinese corporate will contribute pledges has also supported Chinese outbound M&A some capital to the fund, and after several years activity. of observation of the asset while it is held in the fund, provided the corporate is able to confirm the However, Chinese listed companies also face quality (in particular, financial strength) of the asset, some challenges when acquiring foreign assets. it will acquire the asset from the fund. This structure Supervised by the CSRC, listed companies have allows the corporate to derisk the acquisition, while significant information disclosure obligations. Often the private equity achieves an attractive return. an announcement must be made and the company’s Many Chinese outbound M&A transactions are shares suspended while the transaction is still being conducted by funds established as a consortium of negotiated, which may cause problems for the private and strategic Chinese investors. deal. If the transaction has met the conditions for being a “major asset restructuring”, more onerous In 2016, the most active PE funds for overseas investigation by the regulators and information investment and M&A in the market included: disclosure requirements will be involved. These aspects often lead listed companies to make 1 Everbright Capital overseas acquisitions via an M&A fund or in the name of a major shareholder, rather than through Everbright Capital Investment Co., Ltd. is a wholly- the listed company directly. owned subsidiary of Everbright Securities Co., Ltd. and was among the first batch of direct investment For the acquired asset then to be injected into the subsidiaries of security companies to be approved listed company, it must satisfy scrutiny from the by the CSRC. It was established in November 2008 CSRC. The CSRC’s “guideline opinions” indicate that with registered capital of RMB 2 billion. a target normally must be net income profitable, demonstrate sustained and steady improvements in In 2016, Shanghai Jinxin Investment Fund, a performance, and have a reasonable valuation. The partnership between Everbright Capital and precise thresholds are not defined, meaning that in Baofeng Investment, a wholly-owned subsidiary of order to satisfy the CSRC, Chinese acquirers often Beijing Baofeng Technology Co., Ltd., announced prefer assets whose profit is as high as possible, and an agreement to acquire a 65% stake in MP & Silva, normally avoid turnaround or growth plays. This a leading global sports media company. China concern for financial suitability has in the past come Everbright Limited, parent company of Everbright at the expense of strategic rationale, with many Capital, also announced the establishment of the unrelated industry transactions. The recent capital “IDG-Everbright Buyout Fund” in partnership with controls regulation has sought to address this by IDG Capital, with capital of RMB 20 billion. specifically stipulating that proposed deals must now demonstrate clear synergies and industrial 2 IDG Capital relevance. IDG Capital started venture investment in China in 1992 and was the earliest foreign investment fund Section 2: Private Equity Buyers in China. IDG Capital has always concentrated on investment in technology-based and innovation- Almost all Chinese overseas M&A transactions are driven companies in China. By the end of 2015, done with cash. Cash payment avoids extra scrutiny it had invested in over 450 small and medium- by Chinese regulators, and Chinese companies also sized high-tech companies. In 2016, IDG Capital have relatively easy access to cash given the range participated in MLS’s acquisition of Ledvance, the of financing options available to them domestically, lighting products subsidiary of OSRAM, for USD including bond financing and private placements. 440 million. Many listed companies cooperate with M&A funds to conduct overseas M&A. A financial co-investor 3 Orient Securities Capital can provide the corporate with financing and due Shanghai Orient Securities Capital Investment Co., diligence support, and allows an easier process for Ltd. (“Orient Securities Capital”) was established the listed company with regard to the regulators. in February 2010 with registered capital of RMB 4

15 billion. Like Everbright Capital, Since 2016, Cathay Capital’s it is a CSRC-approved direct investments include: Raffel investment company owned by (American supplier of intelligent Many Chinese outbound a securities company. Orient electronic control parts), Ponroy M&A transactions are Securities Capital has been Santé (European supplier of developing rapidly in recent healthcare products, nutritious conducted by funds years with accumulated assets foods and natural organic established as a consortium under management of over RMB personal-care supplies), Alkemics of private and strategic 15 billion. It engages in equity (French retailing data exchange investment, bond investment, platform), Drivy (Europe’s largest Chinese investors M&A, cross-border investment P2P car rental platform), WST and financial consultation. (manufacturer of high-end precision parts) and Quantifind In 2016, Orient Securities Capital’s (American big data analysis Orient Hongtai Fund announced company). the acquisition of AppLovin, a leading global mobile marketing platform. Another of Orient 5 Sailing Capital Securities Capital’s funds, Orient Sailing Capital International Star, acquired the Japanese game (Shanghai) Co., Ltd. is an RMB company SNK Playmore. equity and debt investment fund established under instruction 4 Cathay Capital from the People’s Bank of China (PBOC) and with the support Established in 2006, Cathay of the Shanghai Municipal Capital PE focuses on cross- Government. Its goal is to support border investment. Main sectors the PBOC’s policies of Chinese of focus for the firm include company internationalization consumer products, healthcare, and RMB internationalization, by services, environment, agriculture, providing capital and guidance food safety and high technology. to Chinese companies investing The fund has established offices globally. Sailing Capital has assets in Paris, Shanghai, Beijing, New in the region of RMB 50 billion. York and Germany. Overseas investments involving Sailing Capital include Brookstone and Mobileye. Getty Images

16 Top 20 Cross-Border M&A Transactions Involving Private Equity Funds in 2016

Value Rank Description Financial Participants Industry (USDm)

CDH Investments, Hony Capital, Yunfeng 1 Giant Group et al. acquires Israeli game company Playtika TMT 4,400 Capital, China Minsheng Trust, etc. 2 Zhuhai Apexmic acquires American printer company Lexmark Pacific Alliance Group, Legend Capital TMT 3,440

A consortium led by Daily Tech acquires British data center operator AVIC Trust, Anxin Trust, Ping An Group, TMT 2,750 3 Global Switch Haoyue Capital, etc. Beijing Jianguang Asset Management Co., Ltd. acquires Dutch 3 Jianguang Asset Semiconductor 2,750 semiconductor company NXP’s Standard Products department 5 A consortium led by Beijing Ingenic Semiconductor acquires American Hua Capital Management, CITIC Capital, Gold TMT 1,915 supplier of digital imaging solutions OmniVision Technologies Stone Investment, ZhuhaiRong-Feng, etc.

6 The Silk Road Fund acquires 9.9% of the Russian Yamal LNG project Silk Road Fund Energy 1,400

Orient Hontai Capital acquires American mobile advertising company Orient Hontai Capital TMT 1,400 6 AppLovin

8 Kunlun Tech et al. acquires the consumer business of Norwegian Golden Brick Silk Road Fund (Cayman) TMT 1,278 software company Opera Software Company

9 China Investment Corporation acquires German real estate group BGP China Investment Corporation Real Estate 1,200

XIO Group acquires the American auto ratings business of J.D. Power 10 XIO Fund Financial Services 1,100 & Associates CITIC Industry Investment Fund Management Co., Ltd. acquires 11 CITIC Industry Investment Fund Healthcare 1,050 Singaporean medical equipment manufacturer Biosensors International A consortium led by Miteno acquires American digital marketing 12 Caitong Fund TMT 900 company Media.net Jianyin Investment acquires French pharmaceutical company 13 Jianyin Investment Healthcare 768 SGDPharma Xiwang Food acquires a Canadian sports food company Kerr 14 Cinda Asset Management Healthcare 730 Investment Holding Shanghai Jinxin Investment acquires a controlling interest in Italian 15 Everbright Capital TMT 658 sports copyright company MP & Silva China Investment Corporation acquires Australian port and retail giant 16 China Investment Corporation Utilities 625 Asciano Haixia Huifu Industry Investment Fund, State 17 Sino-European Sports Investment acquires AC Milan Entertainment 576 Development &Investment Corporation, etc. Cindat Capital Management acquires 7 hotels located in New York 18 Cindat Capital Management Real Estate 570 Times Square, Wall Street, etc. Shanhai Capital acquires American semiconductor company Analogix 19 Shanhai Capital Semiconductor 500 Semiconductor HNA Capital acquires an office building in New York Manhattan (850 20 HNA Capital Real Estate 463 3rd Ave)

Source: MergerMarket, Capital IQ, third-party public information, DealGlobe-Hurun analysis

6 CITIC Capital 7 AGIC Capital 8 Hony Capital

Founded in 2002, CITIC Capital is AGIC Capital is a leading Asian- Hony Capital, founded in 2003 and an investment management and European PE firm focused on sponsored by Legend Holdings, is a advisory company that engages industrial technology investments global private equity investor. Hony in private equity, real estate in Europe. It invests in companies Capital currently manages eight investment, structured financing which provide innovative, high-value- PE funds and two RMB mezzanine and asset management, with added solutions to improve industrial funds, with total assets under assets under management of USD productivity (Industry 4.0). management of RMB 68 billion. 20 billion. CITIC Capital currently employs over 250 people and Overseas investment and M&A Overseas investment and M&A has offices in locations including transactions involving AGIC transactions in which Hony Capital Hong Kong, Shanghai, Beijing, Capital include Gimatic (leading has participated include: WeWork, Shenzhen, Tokyo and New York. manufacturer of mechanical CIFA, Biosensors, STX, DEEM and grippers in the field of industrial PizzaExpress. In 2016, CITIC Capital participated automation) and KraussMaffei in the acquisition of American Group (supplier of high-end chip manufacturer OmniVision plastic and rubber processing Technologies. machinery).

17 Part 5: Regulation

The success of M&A by Chinese companies is highly dependent on domestic regulation

his post in February 2016, he and Huaxia Insurance, became imposed stricter supervision on active participants in the M&A M&A transactions. market. In particular, Baoneng’s Shortly after Liu Shiyu, the protracted battle to acquire newly-appointed Chairman In May of 2016, there were media Vanke became a focal point of reports suggesting the CSRC public discussion around listed of the China Securities planned to halt the approval of company ownership, leveraged Regulatory Commission private placement fundraisings buyouts and sources of funds. (CSRC), assumed his post in by listed companies for internet finance, video game, film and By the end of 2016, Liu Shiyu February 2016, he imposed visual reality transactions. The criticized “uncivilised acquisitions” stricter supervision on M&A rumour caused widespread in a public speech. Soon after, transactions concern, and finally the CSRC the China Insurance Regulatory released an official clarification Commission (CIRC) banned Qian denying the change in policy. Hai Life Insurance’s “universal However, despite this, some insurance” product line. It is companies withdrew their widely felt that Chinese life applications for cross-border insurers will continue to receive After the Chinese stock market M&A in these industries, and intense regulatory scrutiny crash in June 2015 and subsequent others failed to gain approval for when conducting M&A for the turbulence, Chinese authorities acquisitions. foreseeable future. introduced a “circuit breaker” mechanism into the A-share In June 2016, the CSRC started In December 2016, Chinese market. The intention of the circuit a public consultation on new media reported that the State breaker was to reduce volatility in “Measures for the Administration Administration of Foreign China’s stock markets by halting of Major Asset Restructurings by Exchange (SAFE) would impose trading after a drop in index value Listed Companies” (major asset stricter regulations on capital by more than a certain percentage. restructuring normally refers to outflow for cross-border However, the circuit breakers did significant M&A). In September, investment. Three situations now not halt the fall in the market, new regulations were officially attract the greatest regulatory instead simply reducing liquidity. put into practice. These were scrutiny and stand the greatest In early 2016, the mechanism was generally stricter and more chances of being blocked: removed, but not before investor specific, stipulating timelines for confidence in the Chinese stock certain regulatory procedures, market, and in the authorities’ and placing greater restrictions 1 Investments of over USD management of it, had been on injections of acquired assets 1 billion by SOEs in overseas real severely knocked. into listed companies. estate projects

Shortly after Liu Shiyu, the In 2016, the investment funds of 2 Cross-border investments of newly-appointed Chairman of a number of Chinese insurance over USD 1 billion by any Chinese the China Securities Regulatory companies, including Baoneng, company outside of its primary Commission (CSRC), assumed Anbang, Sunshine, Guohua Life industry

18 Getty Images

3 Any cross-border investment 4 Cases where the target is currency, the government was over USD 10 billion much larger than the acquirer compelled to impose restrictions on capital outflow. In the same month, the four main 5 Cases where funds are Chinese economic regulators transferred abroad immediately In late November of 2016, the (the National Development and after they are raised NDRC, MOC, PBOC and SAFE Reform Commission (NDRC), confirmed in a joint news A key feature of the new the Ministry of Commerce conference that they stand firmly regulatory environment is that a (MOC), the People’s Bank of by the government’s “going significant degree of responsibility China (PBOC), and SAFE) issued abroad” strategy, i.e. the policy of for regulation of capital outflow a joint document expressing encouraging Chinese companies has shifted from SAFE to the MOC concern regarding “irrational to internationalise. However, they and NDRC. Any Chinese company overseas investment”, particularly emphasized that it is important intending to make an acquisition regarding: to strike a balance between abroad must make a full report facilitating overseas investment and 1 Transactions in real estate, of its finances and details of its controlling risks. The government hotels, movie theatres, and operations to the MOC and NDRC says it will do all it can to safeguard entertainment for examination and approval. market order, and will examine each 2 Transactions in industries The new regulatory measures cross-border investment proposal outside the acquiring company’s were introduced as the value of carefully to ensure it complies with primary industry the RMB to the USD touched its relevant regulations. The ultimate lowest point in the last 6 years. goal is to ensure the healthy 3 Overseas investments by Faced with the prospect of and sustainable development of limited partnerships further devaluation of the Chinese overseas investment.

19 DealGlobe

Helping our clients succeed in China cross-border M&A

20 About DealGlobe DealGlobe offers a full suite of financial advisory services for cross-border deals with China, underpinned by unique proprietary technology.

About Us Founder Lin Feng’s goal was Mergers & Acquisitions to use technology to connect DealGlobe is a China-focused Advisory Chinese companies with M&A advisory firm that advises acquisition and investment DealGlobe has an integrated Chinese and Western clients opportunities globally. After global team of 20+ investment on both buy-side and sell-side over a year of development and banking professionals based in mandates with a China element, testing, DealGlobe’s technology London, Shanghai and Beijing advising on a total of over USD 2.6 application was launched in March who advise its clients on China billion in announced transactions 2015, immediately attracting cross-border M&A. Transaction in 2016. The firm’s proprietary significant numbers of Chinese types include public and private technology supports the sourcing listed companies, privately owned acquisitions, minority stake of Chinese buy-side clients, while businesses, and private equity and investments, divestitures, and also providing a rich database of venture capital firms interested joint-ventures. buyers and investors to support in accessing foreign investment DealGlobe’s Western sell-side opportunities. Capital Raising Advisory mandates. Internally, DealGlobe’s technology streamlines its day- In response to the deal flow As well as M&A, DealGlobe’s to-day processes, allowing the generated, in June 2015 DealGlobe integrated global team provides DealGlobe team to be more established its M&A advisory advice to clients on acquisition efficient and nimble. business. Led by senior bankers financing, strategic private from both Chinese and Western placements, growth capital institutions, the advisory business raising, and early-stage and seed- Our Story today provides a full suite of stage financing. DealGlobe was founded in M&A and capital raising advisory February 2014 with backing services to support DealGlobe’s from the UKTI Sirius Programme. clients in China and abroad.

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21 About Hurun Report Inc. since 1999 Established as a research unit in 1999, Hurun Report Inc. has grown into a leading media group targeted at China and India's high net worth individuals. Its flagship is the Hurun China Rich List and, since 2012, the Hurun Global Rich List. Headquartered in Shanghai, Hurun Report has offices in Beijing, Guangzhou, Chengdu, Sanya, London, Los Angeles, Chicago and Cochin, Kerala in India.

Hurun Research Hurun Horse & Sports, Hurun Health, Hurun Property and Hurun English. Hurun Research (‘Nobody Knows China’s Rich Better’) has grown to become Hurun Conferences the world’s leading authority when it comes to understanding the Chinese and Training high net worth individual. Recent reports Hurun Conferences and Training hosts include partnering with some of China’s over 100 events across China every year, most important financial institutions, local led by its flagships in Beijing and Shanghai government, multinationals and luxury every year. Hurun Conferences and brands, including Bank of China, Taikang Training brings Chinese entrepreneurs Life, Minsheng Bank, Minsheng Financial aboard, to the US, London, Singapore, Leasing, Industrial Bank of China and the Australia and India. Changbaishan government. Hurun International Hurun Media Hurun International. Hurun Report Hurun Media (‘The Voice of Chinese Inc established its India business in 2012, Entrepreneurship’) reaches between one which today is best-known for the Hurun and two million unique viewers a week India Rich List, Hurun India Philanthropy through its digital platform and a further List and for hosting events with some of 485,000 a month through its print media. India’s most respected entrepreneurs. Digital media is made up of 7 WeChat social media accounts, an online business For Further Information, See Hurun Investments www.hurun.net talk show called MaShangHu, distributed Official Wechat Platform: through iQiyi, CBN and Ningxia Satellite, Hurun Investments includes a CNY Hurun Report Hurun International Elite and Hurun.net. Our flagship WeChat 100m early-stage venture capital fund, and School and Hurun Art are Now account is Hurun Business, with others strategic investments in media, education, Officially Launched Under The Group of Hurun Report, including Hurun Education, Hurun Art, classic cars, financial services and luxury. Welcome to Join Us

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