Borderless, Boundless

Borderless, boundless. 2011 Greater China outbound M&A spotlight Chinese Services Group Contents 1 Foreword 2 Executive summary 4 Methodology 5 Greater China outbound M&A activity 12 Consumer Business & Transportation M&A activity 18 Energy & Resources M&A activity 25 Global Financial Services Industry M&A activity 30 Life Science & Health Care M&A activity 34 Manufacturing M&A activity 40 Technology, Media & Telecommunications M&A activity 46 Private equity M&A activity 54 A view from the other side - a target's perspective of a cross-border M&A deal 57 The impact of the 12th Five Year Plan on outbound M&A opportunities 60 The regulatory roundup 64 Introducing the Chinese Services Group 65 Expanding around the globe… 66 Deloitte's CSG network 67 Contacts 68 Notes Foreword Barclays, IBM, Sony, Tommy Hilfiger and Volvo - all renowned, market-leading champions in their particular fields - and all owned, or partly owned, by a business headquartered in Greater China. As the list goes on, individual names become unimportant. What is of importance is the irrefutable fact that cross-border acquisitions emanating from Greater China have grown of late, not only in stature, as the above can attest to, but also in scope and breadth. The stature of deal-making in this particular market has certainly increased over time. In 2005, less than one-out-of-five (19 percent) transactions were valued at more than US$250m. Over the first six months of 2011, this proportion rose to 27 percent, with the market's growing maturity also evident from a global standpoint. Over the same timeframes, outbound M&A activity went from accounting for roughly 0.5 percent of global M&A activity to comprising approximately 1.3 percent. And as Greater China outbound M&A deals have progressively become the norm - as opposed to the exception - so too have their breadth. Over 2005, more than half (52 percent) of total overseas investments by volume went to just five countries - a proportion which fell to 49 percent in the first half of 2011. In fact, over the first six months of the year, Greater China buyers snapped up assets in countries as diverse as Cambodia, Kazakhstan, Mongolia, and the Ukraine - in fact, in every single geographical region across the globe apart from Central America and South Asia. As Greater China businesses broaden and deepen their reach overseas, so too do the underlying factors governing their desire to buy abroad. The years of 2008 and 2009, when Energy & Resources firms from Greater China accounted for more than three-quarters of overseas transactions by value, are now a distant memory, as a potent tonic of economic development, as well as the guiding hand of the state, increasingly steers investment flows into other, more value-added industries. Interest in foreign Consumer Business & Transportation assets is one such area which is seeing growth. Over the first half of 2011, overseas purchases more than doubled year-over-year from a volume perspective, and rose by a factor of five, when looking at valuations. Indeed, razor-thin profit margins within immensely competitive markets at home have forced Chinese consumer product manufacturers to seek new customers abroad, and in some instances, the move overseas has also (inadvertently or otherwise) conferred them with an ability to remarket technologically-superior and/or higher-quality products at home. The same can also be said about the Technology, Media & Telecommunications industry, which has witnessed an explosion of outbound M&A of late, perhaps driven by Greater China businesses' collective need to stay one step ahead of their rivals and at the forefront of the technological curve. However, deal-making in this particular industry is continually dogged by foreign scrutiny, with regulators in developed, economies occasionally taking a negative view of the ultimate motives of some of these acquirers. In order to illuminate these market developments, as well as others, Deloitte's Global Chinese Services Group has produced Borderless, boundless: 2011 Greater China outbound M&A spotlight, which brings you a historical review of outbound M&A activity over recent years, as well as proprietary insights from Deloitte rainmakers into what is driving this change and where the market is headed over the next 18 months. We hope you enjoy reading it and welcome your feedback. Lawrence Chia Head of Deloitte China M&A Services & Global Chinese Services Group Co-Chairman Borderless, boundless 2011 Greater China outbound M&A spotlight 1 Executive summary Outbound M&A overview Sector focus • Greater China outbound M&A is increasingly • Energy & Resources deals contribute one becoming an important component of quarter of overall deal flows. Over H1 regional deal-making. As noted in the 2011, 25 percent of all acquisitions where foreword, outbound purchases in terms of in the Energy & Resources space, which also both volumes and valuations went from comprised 32 percent of the total amount comprising 0.5 percent of global M&A activity invested overseas. However, from both a in 2005 to 1.3 percent in H1 2011. In addition, deal volume and value perspective, these foreign acquisitions are also accounting for a percentages represent a drop in activity larger share of overall M&A flows in Greater compared with 2010 and 2009 metrics. China - over 2005, they comprised just more • Consumer Business & Transportation and than one-in-ten (11 percent) of domestic and Technology, Media & Telecommunications inbound M&A transactions by volume, as well as (TMT) transactions also account for making up 21 percent of total deal valuations. a significant proportion of activity. In By H1 2011, these percentages had risen to 21 combination, these industries make up a further percent and 27 percent respectively. 29 percent of all deals by volume, yet account • H2 2010 saw a record-breaking number for only 8 percent of total deal value. However, of outbound acquisitions take place. while TMT trends have remained broadly flat Outbound M&A activity hit a record-breaking 51 over the 2005 - H1 2011 period, Consumer transactions, valued at a cumulative US$30bn, Business & Transportation activity increased in Q4 2010, ending the busiest year for overseas from an 11 percent share of the overall number acquisitions since records began. Over 2010 of deals in 2009, to 17 percent in H1 2011. as a whole, 150 purchases, valued at a total of US$62bn, were undertaken, a 21 percent rise in year-over-year figures in terms of volumes, and Private equity deal-making a 157 percent increase in terms of values. • Outbound private equity activity softened • While H1 2011 deal flow was decidedly over H1 2011 after a strong performance softer in comparison. Nonetheless, the last in 2010. Outbound acquisitions of foreign quarter of 2010 signaled a market high, with targets by local private equity investors slowed quarterly metrics broadly declining from that over the first half of 2011, presumably due to peak over the subsequent two quarters. Overall the uncertain macroeconomic climate as well however, the market still saw two more deals as the fact that many GPs were busy raising being announced in H1 2011 than in the same RMB-denominated funds. Only five acquisitions, period a year before, with 75 acquisitions, valued at a total of US$546m, were closed in worth total of US$17bn. H1 2011, compared with nine deals valued at US$1.7bn in the same period the previous year. • Deal sizes continue to range higher than normal. In 2010, nearly 30 percent of all • Local GPs prefer to acquire Manufacturing transactions exceeded US$250m in value, sector assets. Unsurprisingly, it was acquisitions the highest proportion in this range since of Manufacturing sector assets that drove the 2005. Figures in H1 2011 were only slightly bulk of private equity M&A abroad, with such less robust, with more than one-quarter (27 deals amounting to one-quarter of all private percent) reaching these levels of value. These equity purchases between 2005 and H1 2011. figures show acquisitions strengthening over the preceding years, as just under one-quarter (24 percent) of all transactions over the whole Outbound M&A activity hit six-and-a-half year (2009 - H1 2011) period were valued at more than US$250m. a record-breaking 51 transactions, valued at a cumulative US$30bn, in Q4 2010, ending the busiest year for overseas acquisitions since records began 2 Deal rationales Obstacles While each and every deal is the product of While outbound M&A activity is moving from particular factors, some hidden from view, here strength to strength, there are still issues that are four overarching drivers of outbound M&A prospective bidders have to face. Here are the activity in general. three main factors: • Securing raw inputs. The single-largest factor • Regulatory processes. Greater China driving overseas acquisitions continues to be acquisitions abroad have often encountered a robust economy and as a result, continuing the scrutiny of foreign regulators, a pattern strong domestic demand for commodities. repeated over H2 2010 and H1 2011, with Furthermore, demand for the energy inputs Huawei, the Chinese TMT player, having felt the required to convert these commodities into full arm of the US regulators of late. In addition, end products will also rise, compelling regional regulatory opacity could be further muddied by state-backed Energy & Resources players to hunt the deteriorating macroeconomic climate, which for increasingly scarce mineral inputs scattered tends to raise protectionist sentiment in target across the globe countries. • Lending a helping hand. As the recent tie-up • Macroeconomic volatility. Recent fluctuations between ICBC and Standard Bank Argentina can in global financial markets will undoubtedly attest to, a number of outbound acquisitions affect prospective bidders' perceptions of have actually been repositioning plays.

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