Special Report on China Cross-Border M&A

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).

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