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. Banks whether or not it is a good time to transact do such transactions as they prepare for a abroad. Previously, Sinochem bid US$2.4bn for predicted surge in investment into the target Australian business Nufarm in Q3 2009, but country, while construction and infrastructure quickly reduced their offer by US$100m as the businesses tend to do so as a result of a wider target struggled to return to growth following Energy & Resources industry deal within the the Global Financial Crisis. Ultimately, the bidder target region. walked away from the deal, unsatisfied that the target's asking price was justifiable in an ••Escaping crowded domestic markets. economic climate that was simply too volatile Competition begets creativity, and many local to predict. And with Standard & Poors recently businesses are getting creative by spreading having downgraded US debt, uncertainty seems their wings abroad. By acquiring in developed likely to gather over H2 2011 and 2012. economies, buyers are hoping to be able to tap into comparatively wealthier and less ••The culture issue. Greater China bidders competitive markets while those who are transacting abroad nowadays are a new breed, looking at purchases in emerging economies distinct from their unsophisticated cousins of are looking to leverage off their comparative yesteryear. The 'window-shopper' mentality advantages in production techniques and that pervaded this particular market before has industrial know-how in order to gain market been replaced by one of hard-nosed experience share there. and professionalism. However, despite this, in many takeover situations, soft skills are equally ••Bringing the world to Greater China. In important, if not more so. Regional bidders addition to growing market share overseas, need to realize that conducting outbound M&A other businesses are actively seeking to is not a zero-sum game. In fact, collaboration, undertake deals abroad in order to create as well as the creation of trust, is almost strategic partnerships back at home. Geely's certainly more meaningful from a target's or acquisition of Volvo is perhaps the best example seller's perspective, especially so if they are of this growing trend, with Volvo recently planning on having an interest in the company announcing that they are constructing a new post-sale, a common occurrence in Asia. factory in Daqing, China, to produce a number of Volvo models, primarily for sale within the country.

Borderless, boundless 2011 Greater China outbound M&A spotlight 3 Methodology

Historical data includes all mergermarket- Statistics for the first or second half of any recorded transactions for the period 1 January given year are marked in the form Hx 20xx. For 2005 to 30 June 2011. example, any mention of the term "2005-H1 2011" in the report indicates that the period in Transactions with deal values greater than question runs from 1 January 2005 to 30 June US$5m are included. If the consideration is 2011. Similarly, any mention of the term "H1 undisclosed, mergermarket includes deals on 2011" indicates that the period in question runs the basis of a reported or estimated value from 1 January 2011 to 30 June 2011. of over US$5m. If the value is not disclosed, mergermarket records a transaction if the target's turnover is greater than US$10m. Private equity transactions Only true merger and acquisitions deals have The following categories of private equity been collated. Transactions usually involve a transaction data are within the scope of this report controlling stake in a company being transferred and included among the data analyzed: between two different parties. Where the stake ••Outbound acquisitions where a bidder was acquired is less than 30 percent (10 percent in a Hong Kong, PRC, Macau or Taiwan-based Asia-Pacific), the deal has been included if its private equity firm which was not affiliated with value is greater than US$100m. any other overseas parent when the transaction Transactions such as restructurings where occurred. shareholders' interests in total remain the same ••Outbound acquisitions undertaken by private have not been collated. mergermarket does equity divisions of domestic entities (for not track property deals, Letters of intent, example, HSBC). Memorandums of understandings, Head of agreement and Non-binding agreements. The categories of data below have been treated as outside of the scope of this report and not subject All US$ symbols refer to US dollars unless to analysis: otherwise stated. ••Deals in which an Asian private equity division The report includes deals from the below of an overseas parent undertook an outbound locations: acquisition. ••Mainland China (China); ••Outbound sovereign wealth fund activity. ••Hong Kong; ••Taiwan; ••Macau. For the purposes of this report, an outbound transaction is defined as a deal in which the bidder is predominantly located in Mainland China, Hong Kong, Macau or Taiwan and the target business is predominantly located in any other country aside from Mainland China, Hong Kong, Macau or Taiwan.

4 Greater China outbound M&A activity

hunting grounds of Western Europe and North America in order to achieve these aims - an assertion that is backed up by actual deal metrics. In 2005, outbound acquisitions of North American and Western European targets by volume comprised close to half (47 percent) of all outbound activity. By 2010, this proportion had fallen to 41 percent. This shift to acquire in new locations is arguably tied to the increased political scrutiny of Greater China investments, most notably into the US, Lawrence Chia, Head of Deloitte China's where the authorities are attempting to prop up M&A Services Team & Global Chinese an increasingly fragile economy and instances Services Group Co-Chairman, believes that of 'China-bashing' are becoming increasingly Greater China outbound M&A activity over commonplace. "With unemployment figures the second half of 2010 and the first half now nudging 10 percent in the US, the last thing of 2011 indicates that the asset class has regulators there want to see are American jobs truly come of age, despite wider financial being threatened by corporate takeovers. And markets remaining highly volatile over the with Greater China acquirers having already same period. And the fact that regional picked all the low-hanging fruit in the US, deal bidders remained as acquisitive as they sizes are getting larger - ultimately resulting in did during a turbulent first half of 2011, any transaction now playing out in the public signals that activity in this particular space eye, which puts the bidder at a disadvantage," will continue to strengthen as a growing Lawrence quipped. number of Greater China corporate and He went on to add that national security concerns private equity firms alike become more also play a role in deterring US regulators from adept and sophisticated at acquiring approving offers emanating from Greater assets overseas. China, the majority of which are targeting US Lawrence's opinions on the recent state-of- Technology, Media & Telecommunications play of outbound activity are substantiated by (TMT) players. "Huawei's failure to acquire US historical M&A data from mergermarket, which TMT firm 3Leaf, announced in Q1 2011, due indicates that quarterly Greater China outbound to regulatory concerns about its links with the deal flows rose over H2 2010 with a record- Chinese military (Huawei's CEO once served in the breaking 51 transactions, worth a cumulative People's Liberation Army) only serves to illustrate US$29.9bn, taking place in the last quarter of what many market practitioners see as being the year, driven primarily by a trio of multi-billion increasingly protectionist policies towards foreign dollar Energy & Resources (E&R) plays in the UK investment - regardless of whether there are and South America. Since then however, activity actually any genuine national security concerns or has softened, with the number of announced not," Lawrence said. transactions falling to 42 deals, worth US$9.4bn, As a result of this, Greater China acquirers are in Q2 2011. increasingly turning to targets closer to home, Nonetheless, over the period as a whole, it is such as Israeli company Makhteshim Agan (MA) clear that Greater China investors are increasingly Industries, a producer of branded, off-patent willing to invest abroad, a trend that Lawrence crop protection solutions which was recently ascribes to a number of long-run drivers that have approached by ChemChina, a Chinese state- influenced previous outbound deals. These include owned-enterprise (SOE), to sell a 60 percent the desire to acquire technological and intellectual stake for US$2.5bn. "ChemChina's bid for property rights, purchase internationally-reputable majority control of MA is a suitable exemplar of brand names, secure strategically-important E&R why Chinese SOEs are looking outside of the US assets overseas and simply grow their operations to make their acquisitions. Utilizing MA's crop abroad. protection technology at home - a simple process given their off-patent status - could help alleviate However, what has changed of late, Lawrence rising domestic food prices, which is the main explains, is that Greater China bidders are driver of inflationary pressure within the Chinese searching for targets outside their traditional

Borderless, boundless 2011 Greater China outbound M&A spotlight 5 economy - and without the issue of dealing with also looking to facilitate deal-making opportunities US or EU antitrust and national security agencies," in emerging market territories by acquiring he remarked. assets via purchases of holding or listed parent companies located in European markets with a However, Lawrence is quick to counter the previous historical relationship to that particular suggestion that regional acquirers are targeting territory. The purchase of a 12.5 percent stake in assets elsewhere at the expense of deal-making UK-listed but Sierra-Leone-based African Minerals opportunities in the US and EU, instead saying by the China Railway Materials Commercial that Greater China bidders will look to transact Corporation for US$244m in Q1 2010 was one in these two markets if the deal is right. "Greater such example of this growing trend and we are China bidders are fast realizing that when an likely to see further deals similar to this one come M&A approach doesn't gain traction in the US, a to market over the foreseeable future." collaborative effort is much more likely to succeed. As a result, there has been a surge in Chinese Not that Lawrence is confident that the bulk of businesses, such as Shenhua Energy and Shaanxi Greater China outbound M&A deals will succeed, Yanchang Petroleum, getting together with their however. "While bidders looking abroad have US counterparts and creating joint ventures (JVs) become a lot more experienced in recent years, and strategic partnerships in order to introduce they still often lack the requisite soft skills required technological best practices at home - a trend I to effectively undertake an outbound transaction, would expect to see continue to grow over the especially in more developed markets, where near-term," he suggested. it isn't necessarily the bidder who offers the most money and who shouts the loudest who Another type of US JV could also arise in the wins the prize. Relationship-building, lobbying near future, Lawrence believes, with deals and collaborative partnerships are the name of where Greater China-based businesses combine the game in these jurisdictions," he surmised. indigenous capital and technical expertise with While some acquirers understand this concept, cheap US labor, coming to market in a complete such as CNOOC, which successfully leveraged a reversal from the typical Sino-US JV of yesteryear. previous 50 percent tie-up with Argentinean Oil "Market commentators have suggested that the & Gas exploration and production firm Bridas to recent railway crash in Wenzhou, China might subsequently gain control of Pan American Energy have put paid to the bid tabled by the Shanghai last year, Lawrence lamented that such instances Railway Bureau and China Railway Construction are the exception to the norm. Corporation to construct the California high-speed rail link between San Francisco and Los Angeles. In summary, Lawrence believed that while the However, I remain confident that Chinese- fundamental drivers of Greater China outbound designed technological solutions will increasingly M&A are still present, regulatory concerns be able to compete against their US and European in target geographies, coupled with a weak competitors on a level playing field, and will macroeconomic outlook and a continued lack almost undoubtedly be more cost-effective of cultural awareness of the implications of a over the long run, making them increasingly proposed tie-up from a bidder's perspective, all attractive in today's cash-constrained climate," he mean that over the near-term, outbound deal commented. flow is likely to move sideways. However, over the next couple of years, he suggested that Chinese Greater China bidders are also continuing to corporates will undoubtedly play a larger role in target European assets as they look to bolster the global economy, setting the stage for a huge domestic sales by acquiring reputable European resurgence in deal-making abroad: "Corporate brand names, as well as purchase European China is on the cusp of an outbound spending holding companies with links to materially-wealthy spree sometime over the next couple of years," emerging market economies. "Deals, such as he foresees, "and this will become evident when Geely's US$1.8bn purchase of Volvo last year, companies such as ICBC and Air China - who are as well as COFCO's acquisition of Societe Du already the world leaders in their field in terms of Chateau de Viaud, the French wine estate, in Q1 market capitalization and most passengers carried 2011 for US$14m, allow domestic manufacturers but have little international exposure otherwise to leapfrog a generation of organic growth in - start to expand their operations abroad as they terms of reputation and brand development, look to increasingly bring China to the world and especially useful when Chinese consumers have a the world to China." penchant for all things foreign," Lawrence said. He continued to note that, in addition, "bidders are

6 Greater China outbound M&A - deal volume

60 60

50 50

40 40

30 30

20 20

10 10

0 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 2005 2005 2005 2005 2006 2006 2006 2006 2007 2007 2007 2007 2008 2008 2008 2008 2009 2009 2009 2009 2010 2010 2010 2010 2011 2011

Deal volume Rolling annual average

Greater China outbound M&A - deal value (US$m)

30,000 30000

25,000 25000

20,000 20000

15,000 15000

10,000 10000

5,000 5000

0 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 2005 2005 2005 2005 2006 2006 2006 2006 2007 2007 2007 2007 2008 2008 2008 2008 2009 2009 2009 2009 2010 2010 2010 2010 2011 2011

Deal value (US$m) Rolling annual average

Borderless, boundless 2011 Greater China outbound M&A spotlight 7 Greater China outbound M&A by disclosed deal size (%)

%

100 100

13 14 13 13 11 15 90 20 20 90 6 10 7 11 10 80 9 80 7 10 9 19 14 15 13 70 16 70 11 14 60 60

50 45 50 37 46 43 40 44 46 42 39 40

30 30

20 20

25 24 19 20 20 10 16 16 18 10

0 0 2005 2006 2007 2008 2009 2010 H1 2011 Total

US$500m

Greater China outbound M&A by target region - volume

% 2 3 3 3 3 100 100 7 5 4

90 17 15 90 17 21 21 29 31 80 30 80

70 70 29 32 31 60 34 31 60 31 25 50 32 50

40 40

30 51 50 30 47 42 44 20 38 20 38 34

10 10

0 0 2005 2006 2007 2008 2009 2010 H1 2011 Total

Americas Other Asia Europe Other

8 Greater China outbound M&A by target region - value (US$m)

% 2 100 100 5 5 9 90 11 22 21 90 15 28 27

80 27 80

30 70 63 22 20 70

60 37 23 60

50 29 50 55

40 18 40 46 6 30 54 58 30 34 20 20 31 31 35

10 16 10 13 7 0 0 2005 2006 2007 2008 2009 2010 H1 2011 Total

Americas Other Asia Europe Other

Greater China outbound M&A by target sector - volume

%

100 100 9 7 11 11 12 17 13 90 17 90 15 16 12 12 15 80 15 80 1 15 18 1 1 70 70 15 22 1 27 1 24 22 21 60 60 21 19 6 2 50 2 6 8 3 2 50 4 7 5 7 3 3 40 40 14 11 34 30 27 30 25 30 35 28

20 25 20 31

10 10 16 13 18 14 11 13 6 0 0 2005 2006 2007 2008 2009 2010 H1 2011 Total

Consumer Business & Transportation Energy & Resources Global Financial Services Industry Life Science & Health Care Manufacturing Real Estate TMT Other

Borderless, boundless 2011 Greater China outbound M&A spotlight 9 Greater China outbound M&A by target sector - value (US$m)

% 2 2 1 100 3 4 1 4 100 7 1 2 8 3 9 14 3 90 4 12 3 10 90 1 11 9 9 1 7 1 6 4 8 1 80 1 8 80 7 1 11 70 70 41 60 60

57 51 50 50 80 79 71 74 65 40 1 40

30 30 32 20 20 22 23 10 10 8 22 2 3 3 5 0 0 2005 2006 2007 2008 2009 2010 H1 2011 Total

Consumer Business & Transportation Energy & Resources Global Financial Services Industry Life Science & Health Care Manufacturing Real Estate TMT Other

Greater China bidders are fast realizing that when an M&A approach doesn't gain traction in the US, a collaborative effort is much more likely to succeed. As a result, there has been a surge in Chinese businesses, such as Shenhua Energy and Shaanxi Yanchang Petroleum, going into partnership with their US counterparts and creating joint ventures (JVs) and strategic partnerships in order to introduce technological best practices at home.

10 Top 20 Greater China outbound deals, H2 2010-H1 2011

Announced Status Target Company Target Sector Target Bidder Company Bidder Seller Seller Deal Date Country Country Company Country value (US$m) 07/09/2010 C Electricite de Energy & United Cheung Kong Hong Kong EDF Energy plc United 8,870 France SA Resources Kingdom Infrastructure Holdings Kingdom (UK-based Limited; Power Assets distribution Holdings Limited ; Li Ka network) Shing Foundation; Li Ka Shing Foundation Limited 01/10/2010 C Repsol Brazil (40% Energy & Brazil China Petroleum & China Repsol YPF S.A. Spain 7,109 Stake) Resources Chemical Corporation 28/11/2010 P Pan American Energy & Argentina Bridas Corporation China BP Plc United 7,059 Energy LLC (60% Resources Kingdom Stake) 11/01/2011 P Makhteshim Agan Manufacturing Israel China National Chemical China United 2,508 Industries Limited Corporation Kingdom (60% Stake) 10/12/2010 C Occidental Energy & Argentina China Petrochemical China Occidental US 2,500 Argentina Resources Corporation Petroleum Exploration & Corporation Production Inc 11/01/2011 C Elkem AS Manufacturing Norway China National Bluestar China Orkla ASA Norway 2,349 Co., Ltd 19/10/2010 P Minerals and Energy & Australia Minmetals Resources Hong Kong China Minmetals China 1,846 Metals Group Resources Limited Non-Ferrous Metals Co.,Ltd 06/12/2010 P BTG Pactual SA Global Financial Brazil BTG Pactual (International China 1,800 (19% Stake) Services Industry Consortium of Investors) 01/02/2011 P BorsodChem Zrt Manufacturing Hungary Wanhua Industrial Group China VCP Vienna; United 1,701 (58% Stake) Co., Ltd. Permira Kingdom 21/04/2011 P Australia Pacific Energy & Australia Sinopec International China Origin Energy US 1,500 LNG Pty Limited Resources Petroleum Exploration and Limited; (15% Stake) Production Corporation ConocoPhillips 16/12/2010 P Solar Silicon Energy & Singapore Contel Corporation Limited China Auzminerals Singapore 1,307 Resources Group Resources Resource Group Pte Ltd Pte Ltd 28/11/2010 C InterGen N.V. (50% Energy & US China Huaneng Group China GMR Group India 1,232 Stake) Resources 10/10/2010 C Chesapeake Energy Energy & US CNOOC International China Chesapeake US 1,080 Corporation (Eagle Resources Limited Energy Ford Shale project) Corporation (33.3% Stake) 10/11/2010 C Brockman Energy & Australia Wah Nam International Hong Kong 885 Resources Limited Resources Holdings Limited 09/05/2011 P The Rank Group Consumer United Guoco Group Limited Hong Kong 880 Plc business & Kingdom Transportation 14/12/2010 P BP Pakistan Energy & Pakistan United Energy Group Hong Kong BP Plc United Kingdom 775 Exploration and Resources Limited Production Inc (nine producing and exploration blocks and four offshore exploration blocks) 01/06/2011 P Medion AG Consumer Germany Lenovo Group Limited Hong Kong 726 business & Transportation 15/12/2010 C Hyva Holding B.V. Manufacturing Netherlands Unitas Capital Pte. Ltd. Hong Kong 3i Group Plc United 694 Kingdom 10/05/2011 P NH Hoteles, SA Consumer Spain Hainan Airlines Co Ltd China 622 (20% Stake) business & Transportation 30/05/2011 P C.P. Vietnam Consumer Vietnam C.P. Pokphand Co. Ltd Hong Kong Charoen Thailand 608 Livestock Co., Ltd. business & Pokphand Group (71% Stake) Transportation Co. Ltd.

P = pending, C = completed

Borderless, boundless 2011 Greater China outbound M&A spotlight 11 Consumer Business & Transportation M&A activity "If 2008 and 2009 were the years when Greater China outbound Energy & Resources (E&R) deals dominated the headlines of business publications around the world, 2010 and H1 2011 will be remembered as the time when the spotlight shifted to the acquisition of overseas Consumer Business & Transportation (CB&T) assets" said Anita Ding, Corporate Finance Services Partner for Deloitte China.

Recent deal trends support Anita's assessment, "This desire to buy firms with good quality, highly with overseas purchases surging in both volume reputable brands means that Greater China and value terms over the past 18 months. Over outbound CB&T acquirers are likely to continue the 2005-2009 period, an average of three CB&T targeting assets in North America, Europe outbound deals, worth approximately US$255m and Australasia over the next 18 months. As a in total, were undertaken each quarter. However, consequence of this, a shift to buy CB&T assets over 2010 and H1 2011, quarterly deal flows in emerging markets, excluding those in South rose to a mean of five acquisitions, collectively East Asia, isn't likely to occur because indigenous worth, on average, US$572m, with Q2 2011 consumer brands in such markets currently lack being a record-breaking three months, with seven the scale and strategic vision to be become truly transactions, worth a total of US$835m, coming global players in the near-term," said Anita. to market. She went on to add that "South East Asia is the exception to the rule here, mainly due to the large The most notable transaction over this period Chinese diaspora that resides in the region, as well was the US$726m acquisition of a 36.66 percent as the fact that outbound CB&T acquisitions in stake in Medion AG, the German electronics South East Asia tend to be of Singaporean-listed company, by the Lenovo Group, the Hong Kong- businesses which nonetheless have located the listed computer manufacturer, as it looks to bulk of their operations in Greater China." expand into the European market, a move which many commentators believe is a step in the right Anita's view on where the majority of outbound direction. "Lenovo had too little presence in CB&T activity is likely to take place is certainly Europe and the Eurozone is the world's largest corroborated by recent deal activity. Over the PC market" one such practitioner remarked in past six-and-a-half years, acquisitions of North the Financial Times, "furthermore, it makes sense American and European assets have accounted for because Lenovo's business in Germany is so far, more than half (57 percent) of all deals by volume mainly commercial, and Medion, a channel brand, and 61 percent by value, while buys of South East is purely consumer-focused," she continued. Asian targets makes up a further 16 percent in terms of deal volume and 18 percent by value. Anita agreed with this judgment, adding that many Greater China Consumer sector businesses However, concentrating on activity over 2010 are avidly hunting for overseas targets as they and H1 2011, it's interesting to note that Greater attempt to move up the value-chain, acquire China-based CB&T acquirers are undertaking reputable brands to introduce to local consumers fewer purchases, and spending less per deal, and grow operations outside of an increasingly when transacting in Europe and North America crowded domestic marketplace. She went on than before. At the same time, they are ramping to highlight one particular deal - the recent up the pace of investments into Australasia and acquisition of Panasonic's washing machine and - to a lesser extent - South East Asia. Greater refrigerator division by Haier, the Chinese white- China acquisitions of Australasian targets made goods company, for approximately US$130m, up just 8 percent of the overall outbound CB&T which subsequently drove online forums into a market between 2005 and 2009, a figure which frenzy over whether Panasonic's popular Gopan doubled to 16 percent over 2010-H1 2011. Bread Maker, which bakes bread from rice, was Similarly, overseas investments by value increased included in the deal specifics (it wasn't) - as a six-fold over the same period. Meanwhile, over good example of this growing trend. the two timeframes in question, South East Asian purchases showed a much more gradual rise, The fact that this particular deal targeted a with comparative volumes remaining broadly Japanese company wasn't incidental either and similar and valuations moving from comprising 16 demonstrates to good effect, the geographical percent to 19 percent of the market. focus on many outbound CB&T acquisitions.

12 The fact that aside from one Transportation From a transportation perspective, Anita predicted deal, every single Greater China outbound that the bulk of prospective outbound deal flow CB&T acquisition into Australasia over the past will continue to emanate from Hong Kong, 18 months has been a Consumer Food-related an unsurprising prediction perhaps, given the acquisition also doesn't surprise Anita. "Since territory's status as the second-largest port in the beginning of 2010, Greater China bidders terms of cargo tonnage in China and the third- have acquired controlling stakes in Australasian largest globally. Indeed, over the past six-and-a- vineyards, dairies and chicken farms and I believe half years, more than 80 percent of all outbound this pattern is indicative of a wider trend that we Transportation deals have stemmed from Hong are seeing at the moment - namely that in some Kong-based firms, with large conglomerates, such particular subsectors, outbound CB&T M&A trends as Hutchison Port Holdings, providing much of the closely mirror movements in domestic demand. As backbone to deal-making in this particular market. Chinese consumers become more affluent, their "Over the long run, I expect to see mainland tastes will shift and producers will - if required - go Chinese Transportation sector businesses overseas in order to satisfy these fast-changing increasingly take up the mantle of outbound M&A appetites," she remarked. activity from their Hong Kong-based counterparts. This recent fad for Australasian foodstuffs actually However, I don't think this is likely to happen extends to the wider market, with more than anytime over the next 18 months. Such businesses one-third (38 percent) of all outbound Consumer are still in the process of raising funds in order Food deals by volume and more than half (51 to consolidate their position within the domestic percent) in terms of value, over the 2005-H1 market, and while a small number of operators, 2011 period, having taken place over the past 18 such as Hainan Airlines, the Southern Chinese months. Notable deals since then include the Q3 airline, have made it clear that they are seeking 2010 US$323m acquisition of Pine Agritech, the overseas acquisitions, I very much think that this is Singaporean soya bean products manufacturer by the exception, not the rule," she surmised. a trio of private Chinese investors, as well as the Q1 2011 US$457m secondary buyout by Affinity Equity Partners, the Hong Kong private equity firm, of Tegel Foods, the New Zealand-based poultry producer, from Australian counterpart Pacific Equity Partners. Anita expected this growth trend to continue over H2 2011 and 2012, citing a number of deal situations that are especially close to her. "The recent acquisition of Tully Sugar, the Australian Since the beginning of 2010, Greater China sugar plantation owner, by COFCO, the Chinese bidders have acquired controlling stakes in food manufacturer, as well as the ongoing bid to acquire Manassen Foods by China's Bright Australasian vineyards, dairies and chicken Food both highlight the continued attractiveness of - among others - antipodean Consumer Food farms and I believe this pattern is indicative assets to Greater China buyers." However, she of a wider trend that we are seeing at the warned prospective bidders looking to emulate their success that the road to acquiring abroad - moment - namely that in some particular whether in Australia or elsewhere - is a complex and lengthy one, best undertaken with guidance subsectors, outbound Consumer Business & from an experienced advisor. Transportation M&A trends closely mirror movements in domestic demand

Borderless, boundless 2011 Greater China outbound M&A spotlight 13 Greater China outbound Consumer Business & Transportation M&A - deal volume

8 8

7 7

6 6

5 5

4 4

3 3

2 2

1 1

0 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 2005 2005 2005 2005 2006 2006 2006 2006 2007 2007 2007 2007 2008 2008 2008 2008 2009 2009 2009 2009 2010 2010 2010 2010 2011 2011

Deal volume Rolling annual average

Greater China outbound Consumer Business & Transportation M&A - deal value (US$m)

1,600 1600

1,400 1400

1,200 1200

1,000 1000

800 800

600 600

400 400

200 200

0 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 2005 2005 2005 2005 2006 2006 2006 2006 2007 2007 2007 2007 2008 2008 2008 2008 2009 2009 2009 2009 2010 2010 2010 2010 2011 2011

Deal value (US$m) Rolling annual average

14 Greater China outbound Consumer Business & Transportation M&A by disclosed deal size (%)

%

100 100 7 7 5 11 10 12 90 90 25 12 14 29 14 11 12 80 80 12 15 70 21 70

60 60 60 38 56 50 50 50 22

40 71 75 57 40

30 30

20 36 38 20 30 10 22 21 10 7 0 0 2005 2006 2007 2008 2009 2010 H1 2011 Total

US$500m

Greater China outbound Consumer Business & Transportation M&A by target region - volume

%

2 100 100 7 5

90 90 31 21 22 80 41 36 80 50 50 54 70 70

60 60 42 38 50 50 8 37 35 40 64 40

33 31 30 30 42 20 20 31 32 24 25 10 10 17 15 7 0 0 2005 2006 2007 2008 2009 2010 H1 2011 Total

Americas Other Asia Europe Other

Borderless, boundless 2011 Greater China outbound M&A spotlight 15 Greater China outbound Consumer Business & Transportation M&A by target region - value (US$m)

%

1 2 1 100 4 100 12 8 16 90 23 90 7 80 41 80

57 70 70 80 60 67 60 91

50 81 50 84 76 40 37 40

30 30 39 20 20 11 23 10 21 10 9 5 4 0 0 2005 2006 2007 2008 2009 2010 H1 2011 Total

Americas Other Asia Europe Other

16 Top 15 Greater China outbound Consumer Business & Transportation deals, H2 2010-H1 2011

Announced Status Target Company Target Sector Target Bidder Company Bidder Seller Seller Deal Date Country Country Company Country value (US$m) 01/06/2011 P Medion AG Consumer Germany Lenovo Group Limited Hong Kong 726 Business 05/07/2010 C Repsol Brazil (40% Transportation Australia China Merchants Group Hong Kong Affinity Equity Australia 546 Stake) Limited Partners 11/01/2011 C Tegel Foods Ltd Consumer New Zealand Affinity Equity Partners Hong Kong Pacific Equity Australia 457 Business Partners 12/08/2010 C Jimlar Corporation Consumer US Li & Fung Limited Hong Kong 450 Business 16/08/2010 C Pine Agritech Consumer Singapore Link Crest Limited China 323 Limited (59.03% Business Stake) 12/10/2010 P Sin Cheng Holdings Consumer Singapore Intime Department Store China Keson Hong Kong 208 PTE Ltd Business (Group) Company Limited International Limited 08/11/2010 P Challenger Wine Consumer Australia CK Life Sciences Hong Kong 165 Trust Ltd (72.26% Business International Holdings Inc Stake) 22/12/2010 P Cerruti Holding Consumer France Concord Distributions Hong Kong Toga Cayman LP Cayman Islands 69 SpAs Business Limited 19/07/2010 P Synlait Milk Limited Consumer New Zealand Bright Dairy & Food Co Ltd China Synlait Limited New Zealand 59 (51% Stake) Business 26/04/2011 P Larry Jewelry Consumer Singapore Eternite International Hong Kong Solid Bonus Hong Kong 51 Limited; Larry Business Company Limited Limited Jewelry (1967) Pte. Ltd 01/10/2010 P Nam Cheong Transportation Singapore Eagle Brand Holdings China Datuk Tiong Su Singapore 46 Offshore Pte. Ltd Limited Kouk (Private (50% Stake) Investor) 31/01/2011 P Ideal Mix Limited Consumer British Virgin Century Ginwa Retail Hong Kong Datuk Tiong Su Singapore 45 Business Islands Holdings Ltd Kouk (Private Investor) 28/06/2011 C Eterna S.A. Consumer Switzerland China Haidian Holdings Hong Kong F.A. Porsche Austria 28 Business Limited Beteiligungen GmbH 13/08/2010 C Catmoss Retail Ltd Consumer India SAIF Partners Hong Kong 21 (20% Stake) Business 13/09/2010 C Vina Bisquertt Consumer Chile COFCO Limited China Bisquertt Family Chile 18 Business

P = pending, C = completed

Borderless, boundless 2011 Greater China outbound M&A spotlight 17 Energy & Resources M&A activity Jeremy South, Mining Sector Leader for Deloitte China and Deloitte Global M&A Mining Leader, suggested that outbound Greater China deal flow in the Energy & Resources (E&R) space will continue to develop over the foreseeable future as Chinese demand for commodities, as well as the energy requirements to convert these into end products, continues to rise off the back of strong macroeconomic trends.

"China is faced with a potential demand and fact that many E&R acquisitions abroad now supply imbalance," Jeremy began. "It must come complete with financing packages. Such continue to dominate global metals consumption financing packages are particularly attractive to satisfy domestic demand so it can build its for mine development projects, which require industrial infrastructure and provide its vast significant capital expenditure to fund mine population with access to the goods they want excavation and infrastructure build-out, ultimately and need. By taking action to ensure a broader meaning development assets typically trade at supply system for key commodities, it is doing what lower values than producing assets. "Indeed, other countries do, but - for obvious reasons - on a the need to secure adequate transportation, more epic scale" he continued. water and energy to run resource extraction and processing operations puts infrastructure There has been a marked increase in Greater needs at the forefront of any Mining or Oil & China outbound E&R investment over the last Gas (O&G) discussion, and without the required decade, with a brisk 45 deals, worth a cumulative infrastructure, the Mining investment may not US$49.1bn, being announced in 2010, mainly make sense," Jeremy said, going on to explain driven by a trio of multi-billion dollar acquisitions that these same infrastructure requirements are of South American assets in the second half of the the lynchpin of industrialized society but are year. In stark contrast, just eight E&R transactions, sadly lacking in both emerging and developed worth US$6.9bn, came to market in 2005. economies - transforming many otherwise However, following a bumper 2010 for Greater attractive E&R investments into complex catch-22 China outbound E&R investment, outbound deal situations. flow softened somewhat over the first half of Infrastructure requirements 2011. During the first six months of the year, 19 Supporting this belief is a recent study by Bank transactions were completed by Greater China- of America Merrill Lynch, which forecasts that based E&R companies, with a total transaction US$6 trillion will be spent on global infrastructure value of US$5.6bn - lower than the 26 deals, projects over the next three years - with 80 worth of US$14.8bn undertaken over the same percent of this amount earmarked for investment period in 2010. Notably, large-cap (US$500m+) in emerging markets. As a result, Greater deal volumes over the first half of the year fell China E&R companies are taking on the task, back to come in line with long-term averages both at home and abroad, of constructing as bidders were unwilling - or unable - to make the infrastructure necessary to make project big-ticket acquisitions. Instead, E&R investors are operations viable, and lowering their M&A bids as increasingly showing price discipline, and are not a partial recompense for this fiscal effort. willing to secure assets at any price - the failed Minmetal bid for Equinox, where Minmetals was This has been particularly prevalent in Africa unwilling to increase its bid over the price offered where the infrastructure need is substantial and by Barrick being testimony to this. these types of projects really help break down one of the key barriers to E&R expansion across Yet while large-cap transactions fell in frequency the continent. An excellent case in point was over the first half of 2011, it was a different story the 2010 signing of a US$23bn memorandum of for small-cap investors. Over the first six months understanding between the Nigerian government of 2011, lower mid-market (US$15m-US$250m) and the China State Construction Engineering acquisitions surged from comprising 37 percent of Corporation to build three oil refineries, one the market in 2010 to accounting for a little less petrochemical facility and other O&G sector than two-thirds (61 percent) of the overall market. infrastructure across Nigeria at a time when This downward shift in deal sizes could be CNOOC was looking to cement a deal to access explained not only by Greater China investors 6bn barrels of the country's oil reserves. exercising price discipline, but also by the

18 This particular example is also a good illustration While investment in Western Mining companies of another trend that Deloitte has witnessed in Australia, North America and Europe has of late, namely that outbound bidders are now remained relatively stable over the two periods in increasingly shifting towards a more cooperative question, Jeremy believes that the trend toward model of M&A. Adi Karev, Deloitte Global Head investing in emerging economies is likely to for Oil & Gas, explained that "CNOOC's inability continue. "Greater China E&R companies are no to acquire control of Unocal in 2005 was a strangers to the global competition for resources," litmus test for Chinese SOEs, and that particular he said, "yet, even by industry standards, comfort approach to deal-making has now been replaced zones have been breached. In search of quality with much more co-operative arrangements, assets, these players have extended their reach to such as JVs and strategic alliances, not to some of the world's most remote and dangerous mention the previously-mentioned financing of regions, including the Democratic Republic of associated infrastructure projects. Ultimately, Congo, Mongolia, Yemen, Syria and Angola. And while commodity supplies may be short in Asia, with commodity prices continuing to rise and China's supply of investment goodwill and capital authorities not always playing ball, I expect to see is definitely healthy in the form of deep cash regional E&R majors revisiting marginal projects in reserves." progressively more remote geographies and with increasing frequency over the near-term." Geographic trends In terms of target geographies, E&R outbound This view is borne out by the data, with Greater M&A activity over 2010-H1 2011 has remained China outbound E&R investors increasingly broadly consistent with long-term trends, with looking to South America and, to a lesser extend, roughly one-third (31 percent) of outbound Africa before to secure supply. Most notably, activity by volume focusing on acquiring acquisitions of South American assets have Australian assets (reinforcing the continued seen a substantial change, with Greater China outbound M&A focus on coal and iron ore), bidders spending US$20.4bn - equating to 37 approximately 28 percent targeting North percent of the total E&R spent abroad over the American targets, and the remainder consisting 2010-H1 2011 period - acquiring Argentinean and of a fluctuating mixture of deals targeting assets Brazilian targets in H2 2010. In contrast, over the located elsewhere. preceding five years, South American acquisitions made up just 7 percent of overall outbound E&R However, looking beyond these figures, it is M&A volumes and 6 percent by value. interesting to note that, despite regulatory issues clouding a sizable number of Greater China bids Sector trends for US & Canadian E&R assets, outbound activity From a sector perspective, more than half into North America actually rose over the past of Greater China outbound E&R acquisitions 18 months. Over 2005-2009, outbound deal over the past six-and-a-half years were in the flow into the region accounted for 21 percent Mining sector, accounting for 57 percent of all of total volumes and 19 percent of total deal outbound deals by volume and 43 percent by values, compared to 28 percent and 22 percent value. However, over the past 18 months, there respectively over the 2010-H1 2011 period. has been a relative shift away from outbound acquisitions in the Mining sector, with an Similarly, the number of Greater China E&R increase in O&G, coal-related and other energy acquisitions in Europe also increased, from 10 deal activity. Over the 2005-2009 period, just percent of transactions over the 2005-2009 one-third of all outbound E&R transactions by period, to 14 percent by volume over the volume were focused in these three industries. succeeding 18 months. However, in terms of By 2010-H1 2011, this proportion had risen to 47 outbound investment by value, bids for European percent and is expected to continue rising. E&R assets fell over the same two periods, from 35 percent of total outbound E&R investment to One industry which could also experience just 19 percent. renewed interest from outbound investors is the nuclear power-generation sector. The Outbound acquisitions of Australian E&R assets announcement that the Chinese authorities remained broadly steady, with deal flows recently gave the country's 13 nuclear power comprising 31 percent of overall volumes and 12 plants a clean bill of health following the April percent of values over the whole 2005-H1 2011 2011 Fukushima disaster means that government period. plans to build a further 80-plus reactors by 2020

Borderless, boundless 2011 Greater China outbound M&A spotlight 19 Greater China Energy & Resource companies are no strangers to the global competition for resources. Yet, even by industry standards, comfort zones have been breached. In search of quality assets, these players have extended their reach to some of the world's most remote and dangerous regions, including the Democratic Republic of Congo, Mongolia, Yemen, Syria and Angola.

are likely to go ahead - a move which could fuel a remains to be seen. Indeed, some Mining sector rise in associated acquisitions abroad as Chinese specialists believe that the opposite could be true, nuclear plant operators look to secure supplies with outbound Mining transactions continuing to of raw uranium inputs. Indeed, China Uranium being chiefly driven by mid-market acquisitions Development, a subsidiary of China Guangdong over H2 2011 and 2012, as bidders increasingly Nuclear Power, has already done so, acquiring a look to avoid paying top dollar for foreign assets 70 percent stake in Energy Metals, an Australian and instead support development projects at company engaged in the exploration and attractive prices. development of uranium projects, for US$70m in However, the Jinchuan/Metorex bid does highlight Q3 2009. the fact that Greater China E&R bidders looking Conclusion abroad are increasingly focusing their attentions Looking forward, Greater China outbound E&R on acquisitions in Africa. Over the 2005-H1 activity is likely to continue trending upward, as 2011 period, acquisitions of African E&R assets China Inc. scours the globe for commodities to amounted to just 11 deals, worth US$6.1bn. This sate its markets at home, especially within the figure is likely to rise as potential acquirers of energy-generation and construction industries, African E&R assets take heart from the fact that which continue to be the powerhouses of China's Vale, also in the running to acquire Metorex, economy. At the same time, SOEs with access subsequently pulled out of the deal, suggesting to preferential lending rates are also expected that they weren't willing to better Jinchuan's offer to carry on buying up foreign E&R assets in (Jinchuan offered Metorex shareholders ZAR8.9 order to secure supplies of a diverse range of per share, trumping Vale's previous offer of strategically-important inputs. Futhermore, with ZAR7.35 per share). Ultimately, the deal highlights price discipline also important, we expect to see that Greater China bidders hunting in unfamiliar an increase in M&A activity when valuations fall, territories are increasingly able to engage in highly as has happened in recent months. dynamic and competitive bidding situations which pit them against sophisticated opponents, and Whether or not prospective outbound M&A still win. activity will be driven by big-ticket deals - such as Chinese miner Jinchuan's recent bid to acquire Metorex, a South African miner with assets in the Democratic Republic of Congo, for US$1.4bn -

20 Greater China outbound Energy & Resources M&A - deal volume

20 20

18 18

16 16

14 14

12 12

10 10

8 8

6 6

4 4

2 2

0 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 2005 2005 2005 2005 2006 2006 2006 2006 2007 2007 2007 2007 2008 2008 2008 2008 2009 2009 2009 2009 2010 2010 2010 2010 2011 2011

Deal volume Rolling annual average

Greater China outbound Energy & Resources M&A - deal value (US$m)

30,000 30000

25,000 25000

20,000 20000

15,000 15000

10,000 10000

5,000 5000

0 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 2005 2005 2005 2005 2006 2006 2006 2006 2007 2007 2007 2007 2008 2008 2008 2008 2009 2009 2009 2009 2010 2010 2010 2010 2011 2011

Deal value (US$m) Rolling annual average

Borderless, boundless 2011 Greater China outbound M&A spotlight 21 Greater China outbound Energy & Resources M&A by disclosed deal size (%)

%

100 100

90 17 22 90 26 27 28 29 39 80 80 50 13 12 70 11 6 5 70 10 10 60 22 60 27 12 21 19 50 33 50 13 14 40 37 40

30 30 39 27 31 37 23 20 37 28 20

10 19 10 9 13 12 11 5 6 0 0 2005 2006 2007 2008 2009 2010 H1 2011 Total

US$500m

Greater China outbound Energy & Resources M&A by target region - volume

% 3 100 100 5 8 6 7 7 13 9 90 20 9 90 13 16 11 17 80 80 10 30 30 70 70 32 10 32 29 40 60 60 62

50 50

40 40

60 30 55 58 30 46 47 50 20 40 20 25 10 10

0 0 2005 2006 2007 2008 2009 2010 H1 2011 Total

Americas Other Asia Europe Other

22 Greater China outbound Energy & Resources M&A by target region - value (US$m)

% 2 100 100 6 5 6 8 11 90 3 11 90 24 24 26 80 29 80 20 70 68 70 57 60 33 9 60 28 50 50 89 64 40 40 64 30 56 6 30 39 14 40 20 20 26 10 18 10 10 4 0 0 2005 2006 2007 2008 2009 2010 H1 2011 Total

Americas Other Asia Europe Other

Borderless, boundless 2011 Greater China outbound M&A spotlight 23 Top 20 Greater China outbound Energy & Resources deals, H2 2010-H1 2011

Announced Status Target Company Target Bidder Company Bidder Seller Seller Deal Date Dominant Country Company Country value Country (US$m) 07/09/2010 C Electricite de France SA (UK United Cheung Kong Infrastructure Hong Kong EDF Energy plc United 8,870 based distribution network) Kingdom Holdings Limited; Power Assets Kingdom Holdings Limited ; Li Ka Shing (Overseas) Foundation; Li Ka Shing Foundation Limited 01/10/2010 C Repsol Brazil (40% Stake) Brazil China Petroleum & Chemical China Repsol YPF S.A. Spain 7,109 Corporation 28/11/2010 P Pan American Energy LLC (60% Argentina Bridas Corporation China BP Plc United 7,059 Stake) Kingdom 10/12/2010 C Occidental Argentina Exploration Argentina China Petrochemical China Occidental US 2,500 & Production Inc Corporation Petroleum Corporation 19/10/2010 P Minerals and Metals Group Australia Minmetals Resources Limited Hong Kong China Minmetals China 1,846 Non-Ferrous Metals Co.,Ltd 21/04/2011 P Australia Pacific LNG Pty Limited Australia Sinopec International China Origin Energy US 1,500 (15% Stake) Petroleum Exploration and Limited; Production Corporation ConocoPhillips 16/12/2010 P Solar Silicon Resources Group Singapore Contel Corporation Limited China Auzminerals Singapore 1,307 Pte Ltd Resource Group Pte Ltd 28/11/2010 C InterGen N.V. (50% Stake) US China Huaneng Group China GMR Group India 1,232 10/10/2010 C Chesapeake Energy Corporation US CNOOC International Limited China Chesapeake US 1,080 (Eagle Ford Shale project) (33.3% Energy Stake) Corporation 21/06/2010 C Chesapeake Energy Corporation US Temasek Holdings Pte Ltd; China 900 (0.14% Stake) Korea Investment Corporation; Li Ka Shing (Canada) Foundation; China Investment Corporation; Hopu Investment Management Co Ltd 10/11/2010 C Brockman Resources Limited Australia Wah Nam International Hong Kong 885 Holdings Limited 14/12/2010 P BP Pakistan Exploration and Pakistan United Energy Group Limited Hong Kong BP Plc United 775 Production Inc (nine producing Kingdom and exploration blocks and four offshore exploration blocks) 20/09/2010 C Sempra Energy Solutions LLC US Noble Group Limited Hong Kong Royal Bank of US 582 Scotland Group Plc; Sempra Energy 04/04/2011 P Taung Gold Limited (86.97% South Africa Wing Hing International Hong Kong Electrum US 580 Stake) (Holdings) Ltd Strategic Resources LLC 30/01/2011 C Chesapeake Energy Corporation US CNOOC International Limited China Chesapeake US 570 (Denver-Julesburg and Powder Energy River Basins project) (33.3% Corporation Stake) 16/05/2011 P Gold One International Ltd Australia Consortium for Gold One China 535 International Limited 23/06/2011 P Caledon Resources Plc United Guangdong Rising Assets China 515 Kingdom Management Co., Ltd 31/05/2011 P Baruun Naran Coking Coal Mine Mongolia Mongolian Coal Corporation Hong Kong QGX Ltd Canada 465 Limited 20/12/2010 C Continental Minerals Corporation Canada Jinchuan Group Limited China 413 23/12/2010 P Hupecol Dorotea & Cabiona, Colombia China Petroleum & Chemical China Hupecol LLC US 281 LLC; Hupecol Llanos, LLC Corporation

P = pending, C = completed

24 Global Financial Services Industry M&A activity Dora Liu, Audit Partner for Deloitte China as well as Head of M&A for its Global Financial Services Industry (GFSI), remained guarded on potential outbound M&A activity in the sector, instead suggesting that policy and state-owned banks are more likely to look at organic expansion strategies in developed economies over H2 2011 and 2012 as volatile global financial markets make the M&A route there progressively more torturous.

Dora's attitude toward the market certainly to deal-making, having gained experience from seems to be panning out in reality. Over the past some very high-profile transactions in the past." four quarters (H2 2010-H1 2011), outbound She went on to suggest that large-cap acquisitions GFSI M&A activity dwindled, with just five deals, are off the menu for the moment as they are worth a total of US$2.1bn, being announced. In simply too risky: "Financial institutions in Hong contrast, over the same timeframe a year prior, 11 Kong and China are adopting a 'wait-and-see' transactions, worth a total of US$2.4bn, came to approach to outbound M&A, while CIC is focusing market. its attentions on syndicating deal financing for Chinese Energy & Resources (E&R) bidders buying As a result of this sharp fall in deal-making, deal abroad, as opposed to making acquisitions itself. values have also dropped with H1 2011 activity Indeed, the former group want to acquire targets taking place exclusively in the lower mid-market in their entirety, or, failing that, achieve majority (US$15m-US$250m) space. In contrast, more than control - yet such transactions are very difficult to one-quarter of all outbound GFSI acquisitions in pull off in this current fragile economic age and 2010 were large-cap (US$500m+) transactions, tainted regulatory climate." driven chiefly by the Q4 2010 US$1.8bn management buyout of an 18.65 percent stake Dora highlighted another interesting point about in BTG Pactual, the Brazilian investment banking recent outbound GFSI deal flows when discussing company, backed by a consortium of investors where the bulk of these acquisitions are being including China Investment Corporation (CIC), made. "These deals, to some extent, tend to China's sovereign wealth fund. emulate wider outbound M&A deal trends, at least in terms of target geographies, as bankers This particular transaction serves to highlight one acquire abroad in order to set up shop, so to of the main factors for the decline in Greater speak, prior to an upcoming wave of subsequent China's outbound GFSI M&A activity of late - the acquisitions. It therefore comes as no surprise fact that CIC is undertaking comparatively fewer that CIC, among others, invested US$1.8bn to outbound GSFI transactions than previously. Over support the management buy-in of BTG Pactual, the 2005-2009 period, one-third of the fund's South America's top M&A financial advisory pure outbound M&A acquisitions by volume were house by volume for 2010, as it looks to provide of foreign financial institutions, a proportion that comprehensive advisory services to the next dropped to 29 percent when looking at data for generation of Chinese acquirers in South America 2010-H1 2011. - a perception that has only been reinforced Instead, CIC has turned its attention to making a following ICBC's recent acquisition of an 80 smaller number of unconventional yet nonetheless percent stake in Standard Bank Argentina" she creative acquisitions, such as its purchase of a noted. 2.3 percent stake in US private equity firm Apax Partly as a result of this, Chinese GFSI acquisitions Partners in Q1 2010, which also gave it the right by target geography became more diffuse over to acquire a portion of outstanding commitments the past 18 months, mirroring overall market to one of the firm's funds. The deal was heralded trends. Over the 2005-2009 timeframe, close to by market-makers the world over for its creativity, 60 percent of all outbound deals were of North with the Financial Times' Lex column calling it American or South East Asian targets, with the a 'groundbreaking development for an illiquid former accounting for roughly 21 percent of such secondary market.' activity and the latter making up the remaining In fact, CIC's unorthodox approach to the Apax 39 percent. Over the past 18 months however, transaction is being echoed within the wider not more than 20 percent of overall deal flow can outbound GFSI market, Dora commented, saying be attributed to one single target region, with that "Greater China GFSI investors hunting abroad outbound GFSI deals occurring in every single are becoming increasingly savvy in their approach region across the world apart from Africa and Australasia.

Borderless, boundless 2011 Greater China outbound M&A spotlight 25 Looking forward, Dora noted that Greater China GFSI players are expected to partner with private equity funds with increasing frequency as they collectively look to invest abroad, going on to say that, "having witnessed a number of global cross- border GFSI acquisitions experience difficulties over the past half-decade, more and more Chinese Having witnessed a number of global cross- policy and state-owned banks are exploring outbound co-investment routes with either Hong border GFSI acquisitions experience Kong- or internationally- based private equity difficulties over the past half-decade, more firms. By doing this, they are able to adopt a very low-key approach to deal-making abroad, as well and more Chinese policy and state-owned as leverage off their co-investors' experience in banks are exploring outbound co-investment cross-border acquisitions." This perception has certainly been borne out in routes with either Hong Kong- or the markets. Reports that China Development Bank was looking to be a cornerstone investor in internationally- based private equity firms. MP Pacific Harbour Capital were recently quashed, By doing this, they are able to adopt a very although the bank did add that it is possible the two companies might cooperate in the future. low-key approach to deal-making abroad, as Meanwhile, back in 2010, Tencent Holdings, the Chinese online service provider, acquired a well as leverage off their co-investors' 10.26 percent stake in Digital Sky Technologies, a experience in cross-border acquisitions. Russian private equity firm specializing in internet- related companies, for US$300m, as it sought to expand into the Russian market, using Digital Sky as one platform to do so. Aside from banks teaming up with the private equity industry to transact overseas, Dora thought that outbound GFSI M&A activity will continue to reflect trends seen over recent years. "While the fundamental drivers to acquire abroad remain in place for many Chinese financial institutions, Continuing regulatory concerns will also preclude them from repeating big-ticket acquisitions in the UK and US as they did in 2007 and 2008," she explained. Dora concluded by suggesting that Chinese GFSI players will "instead, adopt increasingly organic growth models in developed markets and focus their attentions to expanding their presence in emerging markets, such as South America, South East Asia, the Middle East and Africa, where other Chinese businesses - most notably in the Energy & Resources, Manufacturing and Consumer Business & Transportation industries - are operating but are not finding that their banking service needs are being effectively met."

26 Greater China outbound Global Financial Services Industry M&A - deal volume

4 4

3 3

2 2

1 1

0 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 2005 2005 2005 2005 2006 2006 2006 2006 2007 2007 2007 2007 2008 2008 2008 2008 2009 2009 2009 2009 2010 2010 2010 2010 2011 2011

Deal volume Rolling annual average

Greater China outbound Global Financial Services Industry M&A - deal value (US$m)

6,000 6000

5,000 5000

4,000 4000

3,000 3000

2,000 2000

1,000 1000

0 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 2005 2005 2005 2005 2006 2006 2006 2006 2007 2007 2007 2007 2008 2008 2008 2008 2009 2009 2009 2009 2010 2010 2010 2010 2011 2011

Deal value (US$m) Rolling annual average

Borderless, boundless 2011 Greater China outbound M&A spotlight 27 Greater China outbound Global Financial Services Industry M&A by disclosed deal size (%)

%

100 100 11 17 90 20 90 27 29 33 11 80 80 50 15 70 70 9 33 22

60 60 29 15 18 100 33 50 50

40 40 45

30 37 45 30 50 50 42 20 34 20

10 10 9 11 5 0 0 2005 2006 2007 2008 2009 2010 H1 2011 Total

US$500m

Greater China outbound Global Financial Services Industry M&A by target region - volume

%

100 100 5 9 10 20 16 90 25 11 90 9 80 80 16 30 50 18 23 70 20 70

25 60 60 100 50 50

40 68 40 64 61 60 60 30 30 50 50

20 20

10 10

0 0 2005 2006 2007 2008 2009 2010 H1 2011 Total

Americas Other Asia Europe Other

28 Greater China outbound Global Financial Services Industry M&A by target region - value (US$m)

% 1 100 100 11 12 90 18 90 25 35 80 44 24 80

70 70 21

60 94 60 100 16

50 88 50 16 24 81 40 65 40

30 6 30 49

20 38 20 26 10 10 6 0 0 2005 2006 2007 2008 2009 2010 H1 2011 Total

Americas Other Asia Europe Other

Top 5 Greater China outbound Global Financial Services Industry deals, H2 2010-H1 2011

Announced Status Target Company Target Bidder Company Bidder Seller Seller Deal Date Dominant Country Company Country value Country (US$m) 06/12/2010 P BTG Pactual SA (18.65% Stake) Brazil BTG Pactual (International China 1,800 Consortium of Investors) 23/01/2011 P The Bank of East Asia (U.S.A.) US Industrial and Commercial China Bank of East Hong Kong 140 National Association (80% Stake) Bank of China Limited Asia Ltd 04/11/2010 C Secured Capital Japan Co., Ltd. Japan Pacific Alliance Group Ltd; EL Hong Kong 83 (60% Stake) Bidco Limited 15/10/2010 P J-REP Co. Ltd. (48.27% Stake) Japan Macquarie Goodman Asia Ltd Hong Kong 31 31/03/2011 P VinaCapital Group (10% Stake) Vietnam SW Kingsway Capital Holdings Hong Kong Ideal Trade British Virgin 19 Limited Investments Islands Limited

P = pending, C = completed

Borderless, boundless 2011 Greater China outbound M&A spotlight 29 Life Science & Health Care M&A activity The outbound M&A pipeline for Life Science & Health Care (LSHC) deals continues to be largely driven by large-cap acquisitive pharmaceutical businesses with sizable M&A war chests, as well as contract research organization (CRO) tie-ups, said Deloitte China's Life Science & Health Care (LSHC) Industry Leader Yvonne Wu, and Mike Braun, LSHC Sector Leader for Deloitte China's Financial Advisory Services.

Looking back at such outbound deal flow over of US$217m. The deal was perhaps partially the 2005 to 2009 timeframe, Greater China LSHC driven by the fact that Biosensors had recently businesses conducted 17 overseas acquisitions, developed the world's first stent to be coated with spending a total of US$1.9bn in the process. biodegradable polymers and required additional The bulk of these were announced over the funding to effectively market the product. five quarters between Q4 2007-Q4 2008, when The fact that Biosensors subsequently went on seven deals, worth US$1.1bn, came to market. to acquire certain assets belonging to US firm Most of these transactions took place as Chinese Devax, which manufacturers another popular buyers snapped up foreign conglomerates' type of stent, sheds some light on the increased pharmaceuticals divisions as vendors in developed Yvonne Wu willingness of regionally-based private equity firms markets attempted to refocus their attentions to undertake overseas acquisitions of medical back on their core operations following the onset device manufacturers. Indeed, investors such as of the Global Financial Crisis. Hony and AIF Capital Partners, are increasingly Indeed, the largest outbound LSHC deal to take looking to support buyouts of businesses with an place over the period fell into this category. The exposure to interventional cardiology and critical deal saw the Australian pharmaceutical subsidiary care procedures (stents are used on patients of the Zuellig Group, the Hong Kong-based suffering from heart conditions in order to keep investment group, acquire the pharmacy business blood vessels from collapsing). Indeed, Hony's of Symbion Health, the Australian medical services chairman John Zhao said as much following the provider, for US$647m including debt. The target acquisition, noting that the fund "sees tremendous initially came onto the market because Primary growth potential in this market, particularly in Health Care, the vendor, was looking to reduce emerging markets like China, where cardiac its leverage following the acquisition of the target disease remains the number one cause of death." just six months prior, as it looked to strengthen its However, while Yvonne believes that private balance sheet and divest non-core assets. equity interest in the sector will, to an extent, From Zuellig's perspective, the deal represented an drive prospective outbound M&A activity over opportunity to break into the Australian wholesale the near-future (more than 80 percent of all Mike Braun and retail pharmaceutical industry, with Symbion's outbound LSHC deals over 2009 and 2010 were Chemmart and Terry White Chemists retail brands, private equity-backed transactions), she also being instantly recognizable on any Australian high believes that large pharmaceutical players will also street. Furthermore, Symbion Pharmaceuticals had generate a lot of deal flow. "Outbound overseas a market share in the supply of pharmaceutical M&A activity will also be driven by large-scale, products to Australian pharmacies and hospitals cash-rich pharmaceutical manufacturers and exceeding 30 percent, meaning that once the distributors such as Sinopharm and Shanghai deal was complete, Zuellig would instantly have Pharmaceuticals, both of which have sizable M&A a notable presence within the country, a move war-chests following the former's wildly-successful that other regional Pharmaceutical players, such IPO on the Stock Exchange of Hong Kong in Q3 as Sinopharma and Shanghai Pharmaceuticals, are 2009 and the latter's expected US$1.89bn IPO looking to emulate. on the same bourse in H2 2011" she said, adding that 30 percent of Shanghai Pharmaceuticals' A second surge in activity took place in H2 2009 proceeds from its proposed IPO are set to go and 2010, with a further seven transactions, towards domestic and foreign acquisitions. Mike worth US$597m, coming to market over that agreed with Yvonne's sentiments, remarking period. One of the more notable transactions that competitors Shanghai Fosun Pharmaceutical among these was Hony Capital's acquisition of a and state-owned Chongqing Medicines are both 29.47 percent stake in Biosensors Interventional looking to go public in the foreseeable future, Technologies, the Singaporean medical technology with both firms having made it clear that some of licensing and device manufacturer, for a total

30 the proceeds from their respective listings will be such a national champion did emerge, planned earmarked for further acquisitions. healthcare reforms associated with the recent publication of the 12th Five Year Plan, are focusing Nonetheless, both Partners agreed that over medical device manufacturers' attentions on the near-term, outbound pharmaceutical deal- providing more comprehensive and cheaper making will be the exclusive preserve of market medical and healthcare services to 3rd and 4th tier leaders as 2nd tier players continue to focus on cities and communities in Central and Western domestic consolidation. Nonetheless, they both China. remain optimistic that once this current bout of amalgamation is over, a second wave of outbound In summary, both Yvonne and Mike believed activity is likely to take place as these players also that outbound LSHC M&A opportunities will move aboard. continue to manifest themselves over 2012, but quickly admitted that aside from a few dominant Both Yvonne and Mike were also bullish on players, the industry as a whole will require outbound opportunities in the CRO space, a significant wave of domestic consolidation especially since the landmark US$163m acquisition to occur before most companies will have of AppTec Laboratory Services, the US provider of the capacity to successfully acquire abroad. testing, contract R&D, and cGMP manufacturing "Outbound LSHC deals will continue to come to services, by WuXi PharmaTech Inc., the China- market over H2 2011 and 2012 but apart from based and US-listed CRO, in Q1 2008 - a deal Sinopharm, Shanghai Pharmaceuticals and Wuxi only subsequently encumbered by its inadvertent PharmaTech, the industry lacks any new players untimeliness. Indeed, spurred on by supportive who are large enough to compete overseas," government policies, CRO start-ups - many Yvonne said, adding that recent amendments to of which are led by members of the Chinese China's much-vaunted one-child policy will not diaspora - are utilizing their overseas connections have an appreciable impact on outbound M&A to grow in size, although Yvonne cautioned that anytime soon. "It's true that China's 'demographic deal values in this particular arena will continue dividend' is beginning to decrease but I do not to remain very small - at least for the conceivable think that it will have any noticeable impact on future. outbound acquisitions in the Life Science over While optimistic on outbound opportunities the timeframes that we are discussing here," for Greater China-based CROs, neither Partner she remarked. "Instead, what we are seeing are believed that overseas M&A activity in the medical foreign businesses increasingly expressing interest devices subsector would grow substantially in joint ventures, strategic partnerships and over the next 18 months, with the domestic greenfield investments in China as they look to market remaining too fragmented for any one capitalize off the back of an increasingly affluent national champion to emerge. Furthermore, if economy and longer lifespans," she surmised.

Deal flows abroad will also be driven by large-scale, cash-rich pharmaceutical manufacturers and distributors such as Sinopharm and Shanghai Pharmaceuticals, both of which will have sizable M&A war-chests following the former's wildly-successful IPO on the Stock Exchange of Hong Kong in Q3 2009 and the latter's expected US$1.89bn IPO on the same bourse in H2 2011

Borderless, boundless 2011 Greater China outbound M&A spotlight 31 Greater China outbound Life Science & Health Care M&A

6 6 1,200 6 1200 1,095

5 5 1,000 5 1000

4 800 4 800

3 3 600 3 600

2 2 345 400 2 400

1 1 252 200 1 200 160

0 0 0 0 2005 2006 2007 2008 2009 2010 H1 2011

Deal volume Value (US$m)

Greater China outbound Life Science & Health Care M&A by disclosed deal size (%)

7% 14%

36%

43%

US$250m

32 Greater China outbound Life Science & Greater China outbound Life Science & Health Care M&A by target region - volume Health Care M&A by target region - value

% %

100 100100 100

90 9090 90 26 80 8080 43 40 80 50 53 70 60 7070 70

60 6060 60

50 5050 50

40 4040 74 40 60 30 3030 57 30 50 47 20 40 2020 20

10 1010 10

0 00 0 2005-2009 2010-H1 2011 Total 2005-2009 2010-H1 2011 Total

Other Asia Americas Other Asia Americas

Top 10 Greater China outbound Life Science & Health Care deals, 2005-H1 2011

Announced Status Target Company Target Bidder Company Bidder Seller Seller Deal Date Country Country Company Country value (US$m) 19/08/2008 C Symbion Pharmacy Services Pty Australia Zuellig Australia Pharmacy Hong Kong Primary Health Australia 647 Limited Services Pty Limited Care Limited 11/ 3/2008 C Datascope Corporation (Patient US Mindray Medical International China Datascope 240 Monitoring business) Limited Corporation 11/10/2010 P Biosensors Interventional Singapore Hony Capital Co Ltd China Yoh-Chie Lu Singapore 217 Technologies Pte Ltd (29.47% (Private Investor) Stake) 3/1/2008 C AppTec Laboratory Services, Inc US WuXi PharmaTech China 163 2/4/2007 C Evanton Pte Ltd Singapore Colorland Animation Ltd Hong Kong 115 27/5/2010 C Pfizer Inc (Swine Vaccine US Harbin Pharmaceutical Group China Pfizer Inc. US 50 Business) Co Ltd 26/3/2010 P Dragon Pharmaceutical Inc. Canada Chief Respect Limited Hong Kong 39 (62.05% Stake) 15/4/2010 C Famy Care Ltd (undisclosed India AIF Capital Asia III LP Hong Kong 39 minority stake) 6/6/2008 C BioPlus Life Sciences Pvt Ltd India AIF Capital Asia III LP Hong Kong 31 (undisclosed economic interest ) 25/10/2007 C Accensi Pty Ltd Australia Isnecca Pty Limited Hong Kong A&C Chemicals Australia 37 Pty Ltd

P = pending, C = completed

Borderless, boundless 2011 Greater China outbound M&A spotlight 33 Manufacturing M&A activity Outbound Manufacturing M&A activity plateaued over the last quarter of 2010 and the first quarter of 2011, with a total of 26 transactions worth US$8.5bn coming to market over the period in question. However, since then, deal flow has subsided with just six acquisitions, worth US$513m, being announced over Q2 2011 - a sign that Ronald Chao, Deloitte China's National Leader of its Corporate Finance Advisory practice, believed signifies that Chinese bidders are realizing that cross-border M&A acquisitions are hardly ever easy to integrate successfully into their existing business operations.

"We are continuing to see many expressions of purchase of Neucel, Fulida gains a stable supply of interest from Greater China manufacturers eager dissolving pulp, [as well as benefiting from] cost to buy abroad," Ronald continued, but added synergies and quality assurances which extends that: "what we are also witnessing is that the the value chain of our business." proportion of these expressions of interest that are Not that Greater China acquirers are focusing translating into actual bids is falling. Ultimately, I their hunt in just Canada and the US. In fact, over ascribe this to the fact that acquirers are adopting the past 18 months, bidders have widened their a progressively more cautious attitude to M&A as international scope, with outbound Manufacturing they come to realize that effectively integrating deals having taken place in every corner of the and running an overseas operation following an globe, bar Africa and Central America. As a acquisition is a long and arduous process." result, what used to be a predominantly North This feeling that acquisitive outbound American and Western European acquisition manufacturers have already picked most, if not all trend has changed considerably of late - over the of the low-hanging fruit is evident when looking 2005-2009 period, more than half (53 percent) of at deal sizes over the past six-and-a-half years. all cross-border Manufacturing sector acquisitions Over the 2005-2009 period, less than one-in- stemming from Greater China focused on five (17 percent) outbound transactions were targeting North American or Western European worth more than US$250m. However, during assets. Over 2010 and H1 2011, this proportion 2010 and H1 2011, this proportion rose to more fell to 44 percent. than one-in-four (28 percent), indicating that Instead, Manufacturing sector acquirers are now the non-core and distressed asset fire sales that spreading their wings and buying in regions drove a large number of outbound Manufacturing which, until recently, they would have had little or transactions over 2009 and the early part of no presence. Northern Europe and Japan are two 2010 are all but over. "Opportunistic acquisitions, such areas, traditionally being bypassed by Greater such as the US$100m purchase of the global China-based buyers as they sought value-creation suspension and brakes business of stressed US and technological best practices elsewhere. firm Delphi Corporation, by a consortium of However, onerous regulatory requirements in Chinese bidders in Q1 2009, are unlikely to recur such economies, coupled with a shrinking pool on such a scale in the foreseeable future as the of attractive targets for sale and consequently, global economy emerges from the Global Financial high valuations, both mean that outbound Crisis," he said. "Instead, Manufacturing bidders Manufacturing deals in alternative locations are with an acquisitive streak in them are examining increasingly being consummated, with acquisitions their post-merger integration procedures closely of Japanese and Northern European targets and looking to conduct increasingly thorough due accounting for 20 percent of all deals by volume diligence processes as they look to extract greater over the 2010-H1 2011 period, compared to just synergies from any future overseas tie-up," Ronald 7 percent over the five years prior. continued. Ronald highlighted the recent US$2.3bn One such mover in this regard was Fulida Group, acquisition of Norwegian firm Elkem by a the Chinese textiles conglomerate, which acquired consortium consisting of China National Bluestar Neucel Specialty Cellulose, a Canadian cellulose (Bluestar), the Chinese state-owned chemical producer, in Q1 2011 for an undisclosed amount engineering company, and the Blackstone from a consortium of investors led by Wellspring Group, as a prime example of this growing Capital Management, a US private equity firm. tendency to acquire in previously-peripheral Following the transaction, Fulida's Chairman Jianer regions - as well as a potent illustration as to Qi said that, "viscose rayon fiber competition why Chinese Manufacturing businesses are in China has become intense, and with the

34 hunting abroad. "Elkem reportedly produces brands, D'Urban, already has several stores in around half of the world's silicon for electronic China, and Ruyi's senior management is intent on components - including solar panels, which are capitalizing on D'Urban's cachet by introducing already becoming big business in China, given the rest of Renown's brands to the country. the government's recent push to generate 15 "Renown, for its part, gets a paid-for seat at the percent of China's energy from renewable sources China table that other corporates would be deeply by 2020," he noted. Ronald went on to explain envious of, itself a demonstration that Chinese that, "not only does Elkem manufacture a lot of outbound acquisitions are becoming much more silicon - they also produce it very efficiently, having collaborative than they used to be," Ronald developed a process to produce silicon which remarked. requires only 25 percent of the energy consumed In summary, Ronald remained optimistic on during a traditional production process. And now, prospective outbound acquisitions within the Bluestar has access to this technology - for a price Manufacturing sector, suggesting that the that many market commentators believe was very overarching desire to acquire IP, create synergies attractive." and bring the best of the world back to China will In fact, like this deal, the vast majority of Greater continue to drive businesses to scour the globe China purchases of both Scandinavian, as well as for suitable targets for takeover in the foreseeable Japanese, assets were driven, at least partly, by the future. Furthermore, bidders are becoming savvier acquisition of intellectual property (IP). The 41.18 when conducting cross-border acquisitions, driven percent stake acquisition in Renown Incorporated, partly by raw experience, and also partly by the a Japanese upscale apparel manufacturer and fact that SOEs with a mandate to buy abroad distributor, by Shandong Jining Ruyi Woolen increasingly have to answer to their regulatory Textile (Ruyi), the Chinese woolen garment masters. This is particularly true following the manufacturer, in Q2 2010 was just one such deal, introduction the State-owned Assets Supervision with Ruyi looking to learn from Renown's rigorous and Administration Commission's (SASAC) new quality control processes and manufacturing oversight legislation on 1 July 2011. Nonetheless, expertise in producing premium-quality garments in the long-run, such oversight can only serve for sale in both the Chinese and Japanese markets. to focus bidders' minds on the task at hand - a crucial component of getting any cross-border However, Ronald was quick to point out that the transaction completed successfully. deal also demonstrates acquirers' desire to grow domestic market share via overseas brand-name acquisitions. One of Renown's most well-known

Manufacturing bidders with an acquisitive streak in them are now examining their post-merger integration procedures closely and looking to conduct increasingly thorough due diligence processes as they look to extract greater synergies from any future overseas tie-up

Borderless, boundless 2011 Greater China outbound M&A spotlight 35 Greater China outbound Manufacturing M&A - deal volume

14 14

13 13

12 12

11 11

10 10

9 9

8 8

7 7

6 6

5 5

4 4

3 3

2 2

1 1

0 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 2005 2005 2005 2005 2006 2006 2006 2006 2007 2007 2007 2007 2008 2008 2008 2008 2009 2009 2009 2009 2010 2010 2010 2010 2011 2011

Deal volume Rolling annual average

Greater China outbound Manufacturing - deal value (US$m)

7,000 7000

6,000 6000

5,000 5000

4,000 4000

3,000 3000

2,000 2000

1,000 1000

0 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 2005 2005 2005 2005 2006 2006 2006 2006 2007 2007 2007 2007 2008 2008 2008 2008 2009 2009 2009 2009 2010 2010 2010 2010 2011 2011

Deal value (US$m) Rolling annual average

36 Greater China outbound Manufacturing M&A by disclosed deal size (%)

%

100 100 8 6 9 12 13 14 12 90 8 25 90 9 18 6 6 8 9 80 6 80 6 6

70 14 9 70

46 60 38 60 47 49 33 50 62 75 50 45 40 40

30 30

20 36 38 20 33 29 25 10 18 10 13 9 0 0 2005 2006 2007 2008 2009 2010 H1 2011 Total

US$500m

Greater China outbound Manufacturing M&A by target region - volume

%

3 100 100 5 4 5 10 14 12 90 23 90 21 26 27 80 80 32 41 70 36 70 53 26 60 34 60 33 32 50 21 50

40 33 40

30 30 50 43 48 20 38 20 36 37 35 22 10 10

0 0 2005 2006 2007 2008 2009 2010 H1 2011 Total

Americas Other Asia Europe Other

Borderless, boundless 2011 Greater China outbound M&A spotlight 37 Greater China outbound Manufacturing M&A by target region - value (US$m)

% 3 3 1 100 100 5 2 12 15 90 22 90 23 23 4 35 80 42 80 19 53 70 70 46 60 60 20 40 10 50 50

74 76 40 40 62 30 30 48 46 44 20 38 20 32 10 10

1 1 0 0 2005 2006 2007 2008 2009 2010 H1 2011 Total

Americas Other Asia Europe Other

Greater China outbound Manufacturing Greater China outbound Manufacturing M&A by sector - volume M&A by sector - value

3% 2% 1% 7% 4% 6%

11% 37% 38%

12% 24%

12%

18% 25%

Industrial Electronics Automotive Chemical & Materials Industrial Electronics Automotive Chemical & Materials Construction Industrial Products & Services Construction Industrial Products & Services Other Manufacturing Industrial Automation Other Manufacturing Industrial Automation

38 Top 20 Greater China outbound Manufacturing deals, H2 2010-H1 2011

Announced Status Target Company Target Sector Target Bidder Company Bidder Seller Seller Deal Date Country Country Company Country value (US$m) 11/01/2011 P Makhteshim Agan Chemicals and Israel China National Chemical China 2,508 Industries Limited materials Corporation (60% Stake) 11/01/2011 C Elkem AS Industrial Norway China National Bluestar China Orkla ASA Norway 2,349 products and (Group) Co., Ltd services 01/02/2011 C BorsodChem Zrt Chemicals and Hungary Wanhua Industrial Group China VCP Vienna; United 1,701 (58% Stake) materials Co., Ltd. Permira Kingdom 15/12/2010 C Hyva Holding B.V. Industrial Netherlands Unitas Capital Pte. Ltd. Hong Kong 3i Group Plc United 694 products and Kingdom services 18/11/2010 C General Motors Automotive US SAIC Motor Corporation China 500 Company (0.97% Limited Stake) 27/04/2011 P Inalfa Roof Systems Automotive Netherlands Beijing Hainachuan China AAC Capital Netherlands 373 Group B.V. Automotive Parts Co. Ltd Partners; Parcom Capital 01/10/2010 P Nam Cheong Industrial Malaysia Eagle Brand Holdings China Consortium of Malaysia 312 Dockyard Sdn Bhd products and Limited Private Investors services 24/12/2010 C Dexco Polymers Chemicals and US TSRC Corporation Taiwan The Dow US 168 L.P.; Dexco materials Chemical Polymers Company; Operating ExxonMobil Company LLC Chemical Company 10/08/2010 C Friede & Goldman Automotive Netherlands Beijing Hainachuan China AAC Capital Netherlands 125 Ltd Automotive Parts Co. Ltd Partners; Parcom Capital 13/05/2011 P SWCC Showa Industrial: Japan Futong Group Co., Ltd. China 74 Holdings Co Ltd Electronics (18.54% Stake) 16/10/2010 P Gandara Censa Industrial Spain CITIC Heavy Industries China Inverhismex Spain 70 SAL products and Co. Ltd. S.L.; Beaufort services Investments 23/02/2011 P OCV Capivari Chemicals and Brazil Chongqing Polycomp China Owens Corning US 60 Fibras de Vidro materials International Co Ltd Ltdal 18/10/2010 P Mudra Lifestyle Manufacturing India E-Land Fashion China Hong Kong Murarilal India 43 Ltd. (65.84% (other) Holdings Limited Agarwal (Private Stake) Investor); Ravindra Agarwal (Private Investor); Vishwambharlal Bhoot (Private investor) 20/09/2010 P Altair Chemicals and US Canon Investment China 41 Nanotechnologies, materials Holdings, Ltd. Inc. (53.82% Stake) 29/11/2010 C WEIGL Automotive Sweden Beijing Automotive China WEIGL Group Germany 41 Transmission Plant Industry Holding Co., Ltd. GmbH AB 09/05/2011 C Unison Hi-Tech Construction South Korea Unison E-Tech Hong Kong Unison Co Ltd South Korea 39 Co., Ltd. 04/05/2011 P Red Holdings Construction US Far East Global Group Hong Kong 27 Group, Inc. (55% Limited Stake) 01/12/2010 C Cantieri Navali Industrial Italy Nauticstar Marine Co., Ltd China 18 Lavagna products and services 05/10/2010 P IDT Holdings Industrial: Singapore IDT International limited Hong Kong 16 (Singapore) Limited Electronics (22.14% Stake) 08/03/2011 C McCormick France Automotive France YTO Group Corporation China Argo S.p.A. Italy 11 SAS

P = pending, C = completed

Borderless, boundless 2011 Greater China outbound M&A spotlight 39 Technology, Media & Telecommunications M&A activity William Chou, Audit Partner for Deloitte China and National TMT Leader, remained cautiously optimistic on Greater China outbound deal flow in the Technology, Media & Telecommunications (TMT) sector over the foreseeable future. He forecast that activity will primarily be driven by acquisitions by smaller private businesses in the Technology sector as they look to move to the forefront of the innovation curve, particularly by acquiring IP rights from overseas.

William began his discussion by examining some TMT spending overseas during the period. In stark of the main trends seen in the outbound TMT contrast, Greater China bidders spent around M&A market over the past 12 months. "Over US$2.7bn acquiring Telecoms assets between the past four quarters, TMT activity has definitely 2005 and 2009, accounting for around 50 percent moved up into a higher gear, with deal flows of the wider outbound TMT market. showing especially strong gains in H1 2011. William believed the main reason for this shift Indeed over the first two quarters of the year, 11 away from acquisitions in the Telecoms space is transactions, worth a combined US$648m, came two-fold: "Firstly, attractive telecoms assets for to market, putting it on par with the frenetic pace sale at valuations which Hong Kong and Taiwan- of deal-making during the first half of 2007, at the based bidders could afford are now few-and- height of the buyout boom," he stated. far-between. Secondly, truly large-cap Chinese Yet while mean quarterly deal volumes were Telecoms players face large regulatory hurdles if resilient over the past four quarters (each they want to acquire overseas due to their SOE quarter saw an average of six transactions come status and as a result, haven't gone abroad to to market, compared to a mean of just three transact," he explained. per quarter over the previous five-and-a-half Instead, TMT deal flow is increasingly focused in year period), the cumulative amount spent on the Technology sector, which William believed outbound acquisitions has not recovered to levels is generating a sizable proportion of activity previously seen in 2006 and 2007, even though as certain segments within it look to shift their it has strengthened slightly of late. The single operations abroad. "Businesses, such as gaming largest transaction worth more than US$250m to companies, that do not have a specific domestic take place over the past four quarters was worth focus and are unaffected by cultural barriers are US$400m and saw Tencent Holdings, the Chinese going abroad," William explained, continuing on provider of web-based services, snap up a majority to caution that this wasn't the case for all tech holding in Riot Games, the US online video firms. "However, others, such as internet service game developer, in a trade sale for private equity providers and online content producers, tend to and venture capital firms Benchmark Capital avoid expanding overseas, primarily due to cultural and FirstMark Capital respectively. In contrast, issues - their business models have been built up over 2006 and 2007, six outbound deals worth around particular patterns of behavior that are more than US$250m were undertaken, the bulk markedly different from internet usage just across of them seeing Hong Kong and Taiwan-based the border in say, Hong Kong. As a result, internet acquirers buy up stakes in neighboring Asian goliaths such as Baidu and Renren are inherently telecommunication carriers. inward-looking and ultimately, not particularly Indeed, over 2010 and H1 2011, TMT activity took acquisitive overseas." place almost exclusively in the lower mid-market Traditionally a difficult space to conduct a (US$15m-US$100m) space. Indeed, last year cross-border acquisition due to national security saw no outbound TMT acquisitions worth more concerns, outbound Media transactions have than US$100m take place - a far cry from the dropped off of late, with just three deals coming 2005-2009 period when 53 percent of them were to market over 2010 and H1 2011, the largest of above the US$100m threshold. these being the US$48m acquisition of Saffron One of the main reasons behind this downward Digital, the UK digital media service provider, by shift in deal size is that large-cap Telecoms sector HTC, the Taiwanese mobile phone manufacturer. plays almost completely dried up over 2010 and The trade sale saw Beringea Partners, the UK the first half of 2011, with outbound Telecoms private equity firm, exit with a very attractive investment comprising just 14 percent of overall internal rate of return of 65 percent.

40 Despite recent lackluster outbound activity in the Recent transactions, such as Spreadtrum Telecoms and Media sectors, William remained Communications' US$33m buy of a 48.44 percent optimistic on potential opportunities over the stake in MobilePeak Holdings, the US firm which remainder of 2011 and 2012. One particular develops base band semiconductor solutions, is area which he highlighted is within the business indicative of where William thinks the future of outsourcing sector, an industry which almost outbound TMT activity lies. "Over the past six-and- everyone associates with India. However, a-half years, just under one-quarter (24 percent) following the Satyam scandal, Chinese business of all outbound acquisitions stemming from outsourcing providers have slowly been eating mainland China by volume are TMT-focused. Yet, away at India's dominance in the field and now this percentage increases to 30 percent if we look many of these players are looking to take their at deal flows over the past 18 months," he said. first steps overseas. "It's essentially a borderless Yet, William recognized that as Greater China industry and as a result, I believe that we'll see an Technology and Media players increasingly increasing number of outbound deals take place look to acquire counterparts based across the in this space over 2012." he said. He added that Pacific Ocean, so US regulators are becoming private equity investors, such as Hony Capital, increasingly reluctant to approve such bids. "The have also demonstrated increasing interest in this recent Huawei/3Leaf deal, which ultimate failed, space. (Hony is reportedly considering raising its demonstrates clearly that TMT firms looking to stake in Chinasoft International, a Hong Kong- acquire in the US have to tread very carefully. listed provider of IT outsourcing services). Nonetheless, I believe that if prospective Greater Looking forward, William foresaw that outbound China-based TMT acquirers are transparent in their acquisitions in the Media and Telecoms sectors dealings with US regulators, clearly demonstrate will continue to remain few and far between over that they are willing to engage them, and are the near-term, especially given the recent furor thoroughly well versed on their overall strategic that has enveloped News Corp recently. "News vision post-acquisition, the regulatory outcome Corp's failed bid to take control of BSkyB, while will most likely be in their favor," he concluded. not directly related to the legal issues it is facing in the UK, highlights the difficulty in convincing political circles within the target country of the benefit of a foreign takeover. And unfortunately, Businesses, such as gaming companies, that this is a particularly pronounced hurdle when you happen to be buying Telecoms players and Media do not have a specific domestic focus and are empires," he said. unaffected by cultural barriers are going Yet while he is cautious about the future of large-cap Telecoms and Media plays, William abroad. However, others, such as internet is more positive on deal prospects for smaller, service providers and online content privately-owned technology companies as they look to step up the value chain and push the producers, tend to avoid expanding overseas, innovation curve out further. "Chinese technology firms are increasingly finding that they are left primarily due to cultural issues - their behind the cutting edge. And as a result, I believe business models have been built up around that more outbound M&A activity is likely to occur as they look to purchase core technologies particular patterns of behavior that are in order to rectify this. Furthermore, the fact that licensing alternatives to outbound M&A markedly different from internet usage just are becoming prohibitively expensive - and the across the border in say, Hong Kong. fact that Chinese bidders are able to tap local government subsidies in order to fund outbound approaches - only serves to strengthen this incipient trend," he anticipated.

Borderless, boundless 2011 Greater China outbound M&A spotlight 41 Greater China outbound Technology, Media & Telecommunications M&A - deal volume

9 9

8 8

7 7

6 6

5 5

4 4

3 3

2 2

1 1

0 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 2005 2005 2005 2005 2006 2006 2006 2006 2007 2007 2007 2007 2008 2008 2008 2008 2009 2009 2009 2009 2010 2010 2010 2010 2011 2011

Deal volume Rolling annual average

Greater China outbound Technology, Media & Telecommunications - deal value (US$m)

1000 1000

900 900

800 800

700 700

600 600

500 500

400 400

300 300

200 200

100 100

0 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 2005 2005 2005 2005 2006 2006 2006 2006 2007 2007 2007 2007 2008 2008 2008 2008 2009 2009 2009 2009 2010 2010 2010 2010 2011 2011

Deal value (US$m) Rolling annual average

42 Greater China outbound Technology, Media & Telecommunications M&A by disclosed deal size (%) % 2 100 100 8 11 13 13 10 7 90 90 7

80 80 20 33 56 70 70 54 73 60 60 13 53 60 62 50 50

27 40 40 45 30 30

44 20 38 20 30 31 25 27 27 10 10 11 0 0 2005 2006 2007 2008 2009 2010 H1 2011 Total

US$500m

Greater China outbound Technology, Media & Telecommunications M&A by target region - volume % 2 100 4 100 8 11 18 90 22 22 22 18 90 8 23 80 80

25 70 39 27 70

33 35 60 45 32 60 45 50 50

40 40

59 30 55 30 50 45 45 20 41 20 33 33

10 10

0 0 2005 2006 2007 2008 2009 2010 H1 2011 Total

Americas Other Asia Europe Other

Borderless, boundless 2011 Greater China outbound M&A spotlight 43 Greater China outbound Technology, Media & Telecommunications M&A by target region - value (US$m) % 1 100 100 4 7 5 12 9 11 8 90 20 90

80 17 80 54 32 70 70 61 60 76 60 31 82 50 88 50 80

40 16 40

30 56 30

20 40 20 34 30

10 17 10 9 0 0 2005 2006 2007 2008 2009 2010 H1 2011 Total

Americas Other Asia Europe Other

44 Top 20 Greater China outbound Technology, Media & Telecommunications deals, H2 2010-H1 2011

Announced Status Target Company Target Bidder Company Bidder Seller Seller Deal Date Dominant Country Company Country value Country (US$m) 04/02/2011 P Riot Games, Inc. (majority stake) US Tencent Holdings Ltd Hong Kong Benchmark US 400 Capital; FirstMark Capital, LLC 11/10/2010 P Biosensors Interventional Singapore Hony Capital Co Ltd China Yoh-Chie Lu Singapore 217 Technologies Pte Ltd (29.47% (Private Investor) Stake) 26/08/2010 C MCL Land Limited (22.62% Singapore Hongkong Land Holdings Hong Kong 151 Stake) Limited 08/09/2010 P Eyedentity Games Inc South Korea Shanda Games Limited China 95 12/01/2010 C Mochi Media Inc US Shanda Games Limited China Accel Partners; US 80 Shasta Ventures 03/02/2010 C Pegasus Technologies Ltd Israel Shenzhen Yifang Digital China Nippon Venture Israel 60 Technology Co., Ltd Capital Co Ltd; Pentel Co Ltd; The Hitachi Corporate Ventures Catalyst Fund; Israel Amlat Investments Ltd 28/10/2010 P Solarion AG (49% Stake) Germany Walsin Lihwa Corp. Taiwan 55 27/05/2010 C Pfizer Inc (Swine Vaccine US Harbin Pharmaceutical Group China Pfizer Inc. US 50 Business) Co Ltd 18/03/2011 P International Cambodia China-ASEAN Investment Hong Kong 50 Telecommunications Holdings Cooperation Fund Limited (Undisclosed Stake) 31/05/2011 P Cryptic Studios, Inc US Perfect World Co Ltd China Atari Inc France 50 07/02/2011 C Saffron Digital Limited United High Tech Computer Corp Taiwan Beringea LLP United 48 Kingdom Kingdom 01/01/2011 C Power Turn Group Limited British Virgin Pujen Construction Co., Ltd. Taiwan 45 Islands 26/04/2010 C AFPD Pte Ltd Singapore AU Optronics Corporation Taiwan Toshiba Mobile Japan 40 Display Co Ltd 26/03/2010 P Dragon Pharmaceutical Inc. Canada Chief Respect Limited Hong Kong 39 (62.05% Stake) 15/04/2010 C Famy Care Ltd (Undiclosed India AIF Capital Asia III LP Hong Kong 39 Minority Stake) 09/06/2011 C MobilePeak Holdings Ltd US Spreadtrum Communications China Sequoia Capital; US 33 (48.44% Stake) Inc DCM-Doll Capital Management 07/01/2011 P Full Smart Asia Limited British Virgin China Trends Holdings Limited Hong Kong Joy China Group British Virgin 29 Islands Limited Islands 22/03/2010 C Red 5 Studios Inc (Majority Stake) US The9 Limited China 20 24/08/2010 C BSI Semiconductor Pte. Ltd. Singapore WT Microelectronics Co.Ltd Taiwan 17 10/11/2010 P PT. Metrodata e-Bisnis (50% Indonesia Synnex Technology Taiwan P.T. Metrodata Indonesia 17 Stake) International Corp Electronics, Tbk

P = pending, C = completed

Borderless, boundless 2011 Greater China outbound M&A spotlight 45 Private equity M&A activity Over the past six-and-a-half years, outbound M&A activity undertaken by Greater China- based private equity firms (excluding locally-based subsidiaries of global buyout houses), have generally moved in lock-step with wider macroeconomic conditions. Thus, deal flow by volume and, to a lesser extent, by value, spiked in early 2008 and again in mid-2010 before falling away over the first two quarters of 2011.

The first surge in outbound activity took place particular niche, with cash-rich Asian funds buying over 2008, when 14 acquisitions, worth a total up choice assets in Europe and North America of US$1.7bn, were undertaken, with the bulk of as these targets look to bolster their bottom them occurring in the first quarter of the year (6 line and recover from the economic slump of deals, worth a total of US$532m). However, as 2008 and 2009. Over this period, competition the Global Financial Crisis took hold of the region, from global private equity houses was generally private equity players battened down the hatches non-existent as they were working to mitigate the with just three deals, worth a total of US$77m, damage wrought by the Global Financial Crisis on coming to market over the whole of 2009. their portfolio assets and were not interested in conducting an acquisition in Asia, which typically The second wave of outbound deal-making only comprise minority stake investments." began to build in intensity over 2010 as the macroeconomic climate brightened and local Eric went on to suggest that deals have been investment houses began snapping up assets scarce over H1 2011 because local players have which were severely undervalued after the Global been refocusing their operations following their Financial Crisis. All in all, they undertook 15 initial wave of investments in the latter half of transactions over the course of the year and spent the last decade. "Houses, such as SAIF Partners a total of US$2.8bn in the process. Chief among and Unitas Capital, are nearing the end of the these, and the largest outbound private equity last private equity cycle and are busy exiting transaction to take place over the whole six-and- their investments of buyout boom and financial a-half year period, was the US$900m consortium crisis vintage," he noted. Indeed in June 2011, purchase of a 5.75 percent stake in Chesapeake both SAIF Partners and Unitas Capital undertook Energy, the US Oil & Gas exploration and divestments of Indian and Chinese assets of production firm, which saw Chinese private equity they bought in 2008/2009 and incidentally, both firm Hopu Investment Management team up with earned returns of around three times on their Singaporean and Korean sovereign wealth funds initial outlays. and a Hong Kong-managed charitable institution From a sector perspective, local private to acquire the stake. equity firms are increasingly turning their The deal was primarily a commodity play, with attentions to acquiring Technology, Media & one financial broadsheet speculating that the Telecommunications (TMT), Energy & Resources bidders acquired the stake due to the low price of (E&R) and Life Science & Health Care (LSHC) assets, natural gas, which was trading at one-third the with the three industries together accounting for price of oil at the time of the acquisition. It would, more than half (57 percent) of all acquisitions however, seem like the consortium is in for the by volume over the 2010-H1 2011 period. In long haul - at the time of writing, Chesapeake contrast, over the preceding five years, such Energy was trading at US$34.65 per share, having purchases by sector comprised just 29 percent of only recently broken through the US$27 per share the wider market. indicative price that the consortium paid for the Eric was unsurprised by these metrics, explaining stake. Furthermore, natural gas prices have not that the acquisitions of LSHC assets is generally in moved northwards, instead remaining at the level line with wider global private equity acquisition they were at the time of the transaction. trends, while the comparative surge in E&R deals Eric Leung, M&A Transaction Services Leader of late can, in part, be attributed to Chesapeake for Deloitte China, believed that deals such as Energy's two seperate sales of preferred stock over the Chesapeake Energy acquisition are, in part, the course of 2010. More interestingly, he noted responsible for the recent dearth of outbound that, "while the number of TMT transactions acquisition activity. Surveying the scene, he announced has risen over the past 18 months, said that, "the Chesapeake Energy transaction the comparative amount spent on them fell epitomized recent deal-making trends in this dramatically, suggesting that investors are now

46 concentrating their energies on pure growth invest in Greater China; secondly, and perhaps stories. Meanwhile, private equity firms have more importantly, that the growing competition also been spending relatively more on Consumer between local and international private equity Business & Transportation assets, a shift which firms looking to transact within Greater China will underpins the larger outbound M&A market's ultimately drive investors to undertake outbound emphasis on acquiring high-quality overseas transactions as they look to leverage off their brands in order to sate rising levels of conspicuous greater overseas experience and avoid costly consumption back at home." confrontations with domestic competitors. Of perhaps greater surprise was the number of Elaborating on the first point in more detail, Eric Greater China-based private equity players who explained that the raising of RMB-denominated invested in India over the course of 2005-2009. funds by global private equity houses has only Nearly half (48 percent) of all outbound increased rapidly over the past twelve months as acquisitions were of Indian targets, accounting GPs flock to take advantage of China's continuing for just under one-third of the total spent on economic growth. In 2010, 35 private equity outbound purchases - all of them stemming from investors did just that, close to double the number Hong Kong-based private equity houses. One who raised capital the year prior. Furthermore, H2 of the more notable deals saw the Hong Kong- 2011 looks set to be a record-breaking second- based private equity fund AIF Capital acquired an half of the year with eight different funds having undisclosed minority interest in Famy Care, the announced their intention to raise a cumulative Indian company engaged in the manufacturing of RMB39bn in capital over July 2011 alone. a wide range of reproductive healthcare products At the same time, Eric highlighted that some for US$39m in Q2 2010. private equity firms, such as RIT Capital Partners However, while Hong Kong-based investors had a and A Capital Asia, both European private equity love for all things Indian in the past, this certainly groups, have recently received the Chinese isn't the case now. Over the past 18 months, government's approval to raise both US$ and acquisitions of Indian portfolio companies have RMB funds in China specifically for investment fallen to make up less than one-fifth (17 percent) outside of the region, with others reportedly in the of the wider market while total investments there process of doing so - another driver of outbound have dropped to account for just 3 percent of PE activity over the foreseeable future. overall spending abroad. Eric believed that this nascent theme will become Instead, over 2010 and H1 2011, buyers were a defining force driving outbound private equity looking elsewhere, namely North America and activity over the near-term as they are likely to South East Asia, with acquisitions in these two receive the support of the Chinese Government, regions comprising 43 percent of overall deals who arguably views these partnerships of local by volume, a 21 percentage point rise from such capital with foreign investment expertise as great activity over the 2005-2009 period. "Interest in pacifiers of what they might view as recalcitrant North American assets was arguably driven by overseas regulatory regimes. So much so, in fact, China's thirst for E&R inputs, as well as a desire that A Capital Asia is teaming up with the Beijing to acquire operational best practices. Meanwhile, Municipal Government to raise capital while South East Asian plays, such as China-ASEAN Shanghai's authorities are planning to do the Investment Cooperation Fund (CAF)'s US$50m same with a yet-unnamed foreign partner. acquisition of an undisclosed stake in International Nonetheless, Eric admitted that such GPs could Telecommunications Holdings (ITH), the have difficulty hitting their fundraising targets in the Cambodian fiber optic communication network near-term due to a lack of understanding in China and communication data transmission business, of the private equity cycle. "It's worth remembering were mostly driven by the region's huge growth that outbound activity stemming from competing potential," Eric explained. Greater China private equity firms comprised less Looking forward, Eric expected two main trends than one-sixth (14 percent) of overall private equity to determine prospective outbound M&A activity deal-making in the country by volume over the stemming from Greater China-based GPs: firstly, 2005-H1 2011 period - so it's a tiny part of an that foreign private equity firms, unable or arguably small pie anyway. As a result, these GPs unwilling to tap small and expensive sources will, in the beginning, have to work hard to explain of capital elsewhere, will increasingly flock to their strategic model to Chinese investors in a way the region in order to raise RMB in order to which such investors understand," he said.

Borderless, boundless 2011 Greater China outbound M&A spotlight 47 However, this period of flux isn't likely to last too He continued on to say that this competition long, he admitted, explaining that as the asset "doesn't just extend to inbound or domestic class develops over the near-term, investors will transactions - rivalry between local and overseas- become increasingly savvy. "Over the 2005-2009 based private equity firms conducting acquisitions timeframe, Chinese private equity firms accounted abroad is also ramping up. Just look at the for only 11 percent of all Greater China outbound US$694m Q4 2010 auction of Hyva, the Dutch acquisitions by volume and 17 percent in terms of hydraulic component manufacturer, ultimately actual investments. However, these figures have won by Unitas Capital, the Hong Kong-based crept up over the past 18 months to comprise private equity firm, who managed to beat out one-quarter of all deals by volume and over half Permira, a UK competitor, to take the prize." (54 percent) in terms of overseas investments, "What this all boils down to is that over H2 2011 ultimately demonstrating that the asset class as a and 2012, I expect to see a second tranche of whole in China is fast becoming a major outbound local private firms, along with a small number of player," he remarked. foreign ones, who haven't been able to compete With regards to the rising competition that many on some of the largest transactions of 2010 private equity firms now face in the market, Eric and H1 2011, look to re-jig their operations and added that, "nowadays, newcomers to Greater leverage off their strengths in order to generate China are being outmaneuvered by their more- satisfactory returns for their now much-more experienced counterparts, while local subsidiaries discerning clients - and the easiest way to do this of global private equity houses are suffering due is by buying abroad," he concluded. to the comparatively vigorous approval procedures - both internally and externally - by which they must submit. As a result, many of those trying to break down the door into China are resorting to private-investment-in-public-equity (PIPE) deals, that the bulk of market commentators believe significantly underperform other alternative investments."

Over the 2005-2009 timeframe, Chinese private equity firms accounted for only 11 percent of all Greater China outbound acquisitions by volume and 17 percent in terms of actual investments. However, these figures have crept up over the past 18 months to comprise one-quarter of all deals by volume and over half (54 percent) in terms of overseas investments, ultimately demonstrating that the asset class as a whole in China is fast becoming a major outbound player.

48 Greater China outbound private equity M&A - deal volume

6 6

5 5

4 4

3 3

2 2

1 1

0 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 2005 2005 2005 2005 2006 2006 2006 2006 2007 2007 2007 2007 2008 2008 2008 2008 2009 2009 2009 2009 2010 2010 2010 2010 2011 2011

Deal volume Rolling annual average

Greater China outbound private equity M&A - deal value (US$m)

1800 1800

1600 1600

1400 1400

1200 1200

1000 1000

800 800

600 600

400 400

200 200

0 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 2005 2005 2005 2005 2006 2006 2006 2006 2007 2007 2007 2007 2008 2008 2008 2008 2009 2009 2009 2009 2010 2010 2010 2010 2011 2011

Deal value (US$m) Rolling annual average

Borderless, boundless 2011 Greater China outbound M&A spotlight 49 Greater China outbound private equity buyouts M&A by disclosed deal size (%)

%

100 100 14 10 11 90 90 25 25 33 9 14 20 80 4 80 50 8 70 67 70 25 60 60

50 58 50 57 58 40 70 40 67 30 30 50 50 20 20 33

10 18 10 15 9 0 0 2005 2006 2007 2008 2009 2010 H1 2011 Total

US$500m

Greater China outbound private equity buyouts M&A by target region - volume

% 2 100 100 11 14 13 9 90 90 11 33 14 80 14 80

33 70 70

60 60 100 100 100 50 50 75 78 72 40 40 67

30 54 30

20 20

10 10

0 0 2005 2006 2007 2008 2009 2010 H1 2011 Total

Americas Other Asia Europe Other

50 Greater China outbound private equity buyouts M&A by target region - value (US$m)

%

100 100 9 13 90 90

80 80 54 22 59 70 57 70

60 60

100 100 91 100 25 50 50

40 40

28 30 30

41 20 43 40 20

10 18 10

0 0 2005 2006 2007 2008 2009 2010 H1 2011 Total

Americas Other Asia Europe Other

Greater China outbound private equity buyouts M&A by target sector - volume %

100 100 9 11 14 14 20 90 25 90 9 7 80 40 80 22 10 14 70 67 20 70 43 12 25 60 14 60 22 7 12 50 7 20 50

40 40 29 20 23

30 30 50 45 43 20 13 40 20 33 22 25 10 10 13

0 0 2005 2006 2007 2008 2009 2010 H1 2011 Total

Manufacturing Other Global Financial Services Industry TMT Consumer Business & Transportation Energy & Resources Life Science & Health Care

Borderless, boundless 2011 Greater China outbound M&A spotlight 51 Greater China outbound private equity buyouts M&A by target sector - value (US$m)

%

2 100 100 1 4 6 9 9 10 5 90 1 90 26 4 8 3 80 25 42 9 80

70 67 70 60 23 60 57 60 32 84 50 50

40 23 40 66 2 58 30 4 30

20 39 20 29 32 28 25 10 10 7 0 0 2005 2006 2007 2008 2009 2010 H1 2011 Total

Manufacturing Other Global Financial Services Industry TMT Consumer Business & Transportation Energy & Resources Life Science & Health Care

52 Top 20 Greater China outbound private equity buyouts 2005-H1 2011

Announced Status Target Company Target Sector Target Bidder Company Bidder Seller Seller Deal Date Country Country Company Country value (US$m) 21/6/2010 C Chesapeake Energy Energy US Temasek Holdings Pte Ltd; Korea China 900 Corporation (0.14% Investment Corporation; Li Ka Stake) Shing (Canada) Foundation; China Investment Corporation; Hopu Investment Management Co Ltd 16/1/2006 C Waco International Construction South Africa Unitas Capital Pte. Ltd. Hong Kong Capital South 887 Limited International, Africa Inc.; Ethos Private Equity Ltd 15/12/2010 C Hyva Holding B.V. Industrial products Netherlands Unitas Capital Pte. Ltd. Hong Kong 3i Group Plc United 694 and services Kingdom 10/5/2010 C Chesapeake Energy Energy US Maju Investments (Mauritius) Pte China 600 Corporation (0.09% Ltd; Hampton Asset Holding Ltd Stake) 25/6/2008 C Compagnia Italiana Industrial products Italy Goldman Sachs; Changsha China Intesa Italy 580 Forme Acciaio S.p.A. and services Zoomlion Heavy Industry Science Sanpaolo & Technology Development Co SpA; Fondo Ltd; Mandarin Capital Partners; Magenta; Hony Capital Fund III, L.P Fadore S.ar.l. 11/1/2011 C Tegel Foods Ltd Consumer: Foods New Affinity Equity Partners Hong Kong Pacific Equity Australia 457 Zealand Partners 11/12/2006 C Exego Group Pty Ltd Automotive Australia Unitas Capital Pte. Ltd. Hong Kong Macquarie Australia 435 Group Limited 4/2/2008 C EON Capital Berhad Financial Services Malaysia Primus Pacific Partners 1 L. P Hong Kong Hicom Malaysia 412 (20.2% Stake) Holdings Berhad 4/7/2008 C Nord Anglia Education Services (other) United Baring Private Equity Asia Hong Kong 368 Plc Kingdom 11/10/2010 P Biosensors Biotechnology Singapore Hony Capital Co Ltd China Yoh-Chie Singapore 217 Interventional Lu (Private Technologies Pte Ltd Investor) (29.47% Stake) 30/5/2005 C CJ HelloVision Media South Korea ABN AMRO (pre 2009); Hong Kong 174 Kookmin Bank; Macquarie Korea Opportunities Fund; Capital Z Asia Partners II LP; Excelsior Capital Asia Partners III LP 14/8/2008 C RSP Design Construction India Baring Private Equity Asia Hong Kong 100 Consultants (India) Private Ltd (40% Stake) 4/11/2010 C Secured Capital Japan Financial Services Japan Pacific Alliance Group Ltd; EL Hong Kong 83 Co., Ltd. (60% Stake) Bidco Limited 7/1/2010 P Oxus Gold Plc Mining United Baiyin Nonferrous Group Co China 76 (formerly known as Kingdom Ltd; CITIC Construction; Chang Oxus Mining Plc) Xin Yuan Su (Tianjin) Equity (59.7% Stake) Investment Fund Management LP 30/3/2008 C Sing Lun Holdings Manufacturing Singapore Vega Company Limited Hong Kong 72 Limited (other) 6/9/2006 C Two Degrees Mobile Telecommunications: New General Enterprise Hong Kong Econet South 65 Limited (50% Stake) Carriers Zealand Management Services Limited; Wireless Africa Communications Venture Group Partners 15/7/2005 C Modern Asia Industrial products Thailand Headland Capital Partners Ltd ; Hong Kong Global US 60 Environmental and services Thai Strategic Holdings Ltd Environment Holdings Inc Fund; Thai Recovery Fund 12/1/2010 C Coastal Projects Services (other) India Deutsche Beteiligungs AG; Hong Kong SR Credits India 55 Private Limited (16% Sequoia Capital; Baring Private Private Stake) Equity Asia; Canter Equity Limited Partners LLP 18/ 3/2011 P International Telecommunications: Cambodia China-ASEAN Investment Hong Kong 50 Telecommunications Carriers Cooperation Fund Holdings Limited (Undisclosed Stake)

3/8/2009 C Tat Hong Holdings Financial Services Singapore AIF Capital Machinery Hong Kong 45 Limited (Undisclosed Investment Limited economic interest) P = pending, C = completed

Borderless, boundless 2011 Greater China outbound M&A spotlight 53 A view from the other side - a target's perspective of a cross-border M&A deal

Claudia Lauw, Corporate Financial Advisory Partner, Deloitte Indonesia Overall, Claudia is bullish on prospective Greater China acquisitions in Indonesia and South East Asia as a whole, saying that the region's growth potential, favorable population demographics and relative political stability are attractive drivers for prospective bidders looking to expand overseas. "What we are seeing in Indonesia is a heightened level of interest emanating from Greater China banks and financial institutions for local assets, especially ones that allow them to directly tap into the country's large Chinese diaspora. Many of these acquirers are looking to emulate ICBC, who snapped up Halim Bank for an undisclosed sum in 2007 and whose local operations have gone from strength to strength ever since," she said.

At the same time, Claudia also believed that "This is because Greater China bidders continue to inbound M&A stemming from Greater China will think that South East Asian assets are cheap - which increasingly focus on acquiring unique commodity couldn't be further from the truth. One need only assets whose raw produce is unavailable or look at the US$5.1bn acquisition of Sampoerna, prohibitively expensive at home. Acquisitions the local cigarette manufacturer by Philip Morris such as Noble Group's Q2 2010 51 percent Indonesia, which was undertaken at a healthy deal stake purchase in PT Henrison Inti Persada, premium in 2005, to see that local assets can't the Indonesian company engaged in palm oil be considered cheap," Claudia explained. She production, for an undisclosed consideration, went on to elaborate that Greater Chinese buyers Hong Kong-based Tradeeasy Holdings' US$157m tend to prioritize the bulk of their outbound M&A acquisition of Merdeka Timber Group, the war chests for prestige investments in Australia, Indonesian manufacturer of timber and tropical North America and the US, and as a result, tend hardwood products in 2007, as well as the 55 to overlook South East Asia as a region as a percent stake acquisition in Dong Feng Lion Tyre place to undertake multi-million dollar purchases. Company, the Malaysian tire manufacturer, by Moreover, many prospective Energy & Resources Dong Feng Tyres, for US$S7m in 2005, are all (E&R) acquirers also overlook the favorable salient examples of this trend. geographical proximity of South East Asia to China, compared to say Australia, West Africa or These three cases also illustrate another issue that North America. tends to impact Greater China deal-making in South East Asia. Claudia highlighted that the vast Nonetheless, despite this, Claudia judged cross- majority of such acquisitions are lower mid-market border deal flow between Greater China and (

54 David Chen, National Director, CSG, Deloitte Mexico "Greater China-based conglomerates' interest in acquiring Mexican assets is set to surge over H2 2011 and 2012," said David Chen, National Director for Deloitte's Chinese Services Group, who went on to say that "many potential bidders are looking to use Mexico as a springboard for expansion across the region as a whole - especially since targets in their first- choice locality - the US - are difficult to successfully pursue."

David highlighted his reasons behind this expected Nevertheless, while the fundamentals seem to be surge in investment, which were certainly in place, David admitted that deals will only occur compelling. "The fact that China is Mexico's when there is a watertight strategic rationale to second-largest trading partner, accounting for do so - and will most likely be limited to Chinese around 6 percent of all Mexican imports and manufacturers of products with high transport exports, is an important driver, as is the fact costs (such as vehicles) or for industry players in that Mexico is a signatory, not only of the North which Mexico has preferential tariff treatment American Free Trade Agreement (NAFTA), but under NAFTA. Furthermore, under Mexico's also 42 similar treaties, which between them, regulatory regime, potential acquirers looking liberalizes Mexican trade with most countries in for a tie-up within a certain industry, such as the Western Hemisphere - an important point the Automotive sector, have to invest a total of given that China and the US regularly engage US$100m in the target business - a potentially in trade spats that often result in hefty customs huge disincentive to invest. duties being slapped on Chinese exports destined On the sum of it however, David maintained an for the US," he said. overall bullish stance on prospective acquisitions Yet Mexico's plethora of free trade agreements by Greater China firms of Mexican businesses isn't the only reason why Greater China-based over the near-term. "It would be untrue to say businesses are looking to make the long flight that potential Mexican companies are welcoming over the Pacific. Mexican labor has also become Greater China bidders with open arms - Mexican comparatively more competitive vis-a-vis its owners are justifiably proud of their businesses. Chinese counterparts, with local costs now However, the truth of the matter is that the running at a modest 13.8 percent premium two countries are at similar stages of economic to Chinese wages - a far cry from the 260 development and because of that, still bring percent differential that existed five years ago. an enthusiastic can-do business attitude to any Furthermore, David argued that the negative prospective tie-ups, obviously a positive precursor impact of this marginal premium is actually of M&A activity," he noted. neutralized given Mexico's geographical closeness David ended by noting that there are also to the US - a fact that is not lost on a number of macroeconomic factors at play. "Despite the mainland Chinese firms who are in the process of plethora of issues dogging the US economy at setting up shop in Mexico. the moment, both Mexico and China are keen to Computer manufacturer Lenovo was the first to remain on good trading terms with their North do so, building a plant in Apodaca, Mexico, in American counterparts and this is where Mexico 2008. The facility now produces three million has a strong advantage. As long as US consumers laptops for sale in the US and South American continue to demand high-quality yet cheap markets. Second on the podium was Shenyang consumer goods, China will never throw Mexico Brilliant Elevators, which is reportedly forming out of bed," he finished. a joint venture with privately owned Mexican elevator, escalator and conveyor belt distributor Skakoan sometime in 2011. Meanwhile, Geely, First Auto Works and Hebei Zhongxing Auto, three Chinese automotive players have also made it public that they are mulling over a potential move to Mexico.

Borderless, boundless 2011 Greater China outbound M&A spotlight 55 Evans Tomety, Partner/Head, Tax & Legal Services, Deloitte West & Central Africa Evans Tomety, Tax & Legal Services Partner for Deloitte West & Central Africa, remains confident that Greater China interest in African targets will continue to materialize over the coming months and years off the back of strengthening trade ties between the two regions.

Contrary to popular perception, Greater China's contractors in Africa sometimes tend to use trading relationship with Africa has been a long cheaper imported labor stifling local competition and prosperous one, and Africa is fast becoming and destroying local employment prospects." an important trading destination for Chinese However, despite such instances, Evans suggested businesses - and not just in natural resources. that overall, Greater China-based acquirers are Trade flows between the two regions was generally viewed in a positive light. "Chinese worth around US$120bn in 2010, with Chinese bidders bring with them much-needed capital and businesses chiefly importing manufactured goods a proven ability to align their interests closely with and machinery and transportation equipment to their local counterparts. Furthermore, they are the continent while primarily exporting raw inputs able to import technical expertise, especially useful for China's domestic Energy & Resources industry. within the Oil & Gas exploration and production These findings do not surprise Evans who industries. Finally, there's a strong element of trust commented that, "Greater China outbound M&A between the two sides - perhaps the most crucial activity in Africa is in fact, the primary driver of factor of all," he explained. the import of transportation equipment and As a result, Evans is optimistic about future related machinery into the continent as successful outbound deal flows from Greater China into E&R acquirers bring with them the necessary Africa - and he believed that such the current equipment to construct the infrastructure required focus on E&R purchases will eventually be for efficient mineral extraction. As a result, the replaced with a much broader range of deals by wider social benefits of this recent surge in industry. "The second wave of Chinese outbound outbound Greater China M&A into Africa are large activity into Africa is long overdue," he said, and continually growing, meaning that Africa as continuing on to mention that, "when it does a whole, is fairly well disposed to Greater China- come, it won't revolve around E&R transactions, based investments on their home turf." but will see Chinese Consumer Business sector This doesn't mean that the relationship between manufacturers - viewed as providers of low-cost, the two is especially cozy, Evans quickly added, reliable-quality products in Africa - looking to going on to say, "Greater China-based firms expand their presence across the continent. buying in Africa are aggressive in their approaches Indeed, Chinese air conditioner manufacturer and drive a hard bargain. At the same time, Midea's US$57m acquisition of a 32.7 percent Chinese SOEs face long approval timeframes stake in Misr Refrigeration and Air Conditioning, from local regulatory authorities when looking to its Egyptian counterpart, in Q2 2010 is an early transact in Africa, making acquisitions all the more example of what I believe will dominate the next difficult. And while their infrastructure projects are surge of Greater China investments into Africa," obviously of benefit to local economies, Chinese he summarized.

Chinese bidders bring with them much-needed capital and a proven ability to align their interests closely with their local counterparts. Furthermore, they are able to import technical expertise, especially useful within the Oil & Gas exploration and production industries. Finally, there's a strong element of trust between the two sides - perhaps the most crucial factor of all.

56 The impact of the 12th Five Year Plan on outbound M&A opportunities

After nearly two years in the conceptualizing, planning and structuring phases, the 12th Five Year Plan (FYP) was ratified in the spring of 2011 by the Communist Party of China's (CPC) Central Committee. It is a broad and ambitious plan that emphasized balanced and sustainable growth over fast expansion at any price.

The overarching goals and specific implementation export economy and towards a more balanced maps of the FYP have distinct implications for model - with solid consumption at home and with the overall Greater China M&A landscape and Chinese businesses growing into more powerful, for outbound deal flows in particular, with the and innovative players abroad - may well be the Plan prioritizing the acceleration and broadening defining macroeconomic trend for outbound of outbound investments as it looks to create investment over the coming decade. national champions with a global cachet. Secondly, the Plan espouses sustainable The 12th FYP differs significantly from its urbanization and the upgrading of rural predecessors in its breadth, depth, and focus. infrastructure and agriculture, which will have The 11th FYP (2006-2010) focused on "Quality obvious ramifications for M&A activity in the Growth", with some liberalization of the Financial Infrastructure, Real Estate, and Agribusiness Services sector, the promotion of indigenous industries. From a sustainability perspective, innovation, more export promotion, and growth targets include reducing agriculture investment in building a "Harmonious Society" output to account for less than 10 percent of domestically. During this period, outbound M&A China's economy by 2015. This, coupled with activity surged as enterprises (mostly state- rising food prices and a shift to implement owned) came under increasing policy pressure to sustainable agriculture practices, means that acquire abroad, mostly in the Energy & Resources agribusinesses are increasingly hunting for (E&R) sector, but also within the Manufacturing, overseas targets, with two such deals already Automotive, and Financial Services spaces. having come to market over H1 2011 alone, including the largest announced outbound In contrast, the 12th FYP (2011-2015) is being put deal in agriculture to date. The acquisition saw in place at the beginning of a naturally occurring Hong Kong-based C P Pokphand Company second wave of outbound M&A - one that is (CPP) acquired a 70.82 percent interest in C P shifting away from simple resource acquisition, Vietnam Livestock Corporation, a Vietnam-based and diversifying towards the acquisition of livestock and aquaculture company, for US$609m. technologies, operational best practices, and Beyond allowing CPP to expand geographically brands, as well as gaining foreign market share and broaden its business base, the acquisition and market knowledge. Just as enterprises also allows it to generate synergies with its themselves are engaging in more broad-minded existing feed business in China through enhanced and strategic thinking, this newest Plan is focused economies of scale in raw material purchases. on "Inclusive Growth", essentially meaning high-quality, slower expansion with a focus on The Plan's third priority is centered on balancing sustainability-social, environmental, and economic. social equality and improving the social safety Therefore, the Plan's priorities include creating net. By accelerating health care and education a consumer-driven economy, maintaining social reform (as well as encouraging private investment stability, and systematically "growing out" of in these sectors), policymakers will indirectly imbalances, rather than simply redistributing encourage state-owned and private players alike resources. to go abroad and acquire technologies to build their businesses in health care subsectors such as For Greater China companies seeking abroad, the medical devices, pharmaceuticals, genomics, this has a number of critical implications which and vaccine spaces. This move is exemplified by can be understood most clearly by examining Harbin Pharmaceuticals' acquisition of Pfizer's the seven major themes of the 12th FYP. The first swine vaccine business for US$50m in mid-2010. major pillar of the Plan revolves around increasing domestic consumption as a means for economic Additionally, the first half of 2011 has seen an growth that is less export-driven. While this uptick in deals in the Education sector, with two may not have directly quantifiable effects on deals already having taken place worth a total of outbound M&A in the short run, it is arguable US$37m, compared to no such transactions taking that this longer-term strategic shift away from an place over 2010 and only three deals coming to

Borderless, boundless 2011 Greater China outbound M&A spotlight 57 market over the preceding two years. It is worth In fact it is possible to see this trend seeming noting that of these five deals, three of them have to play out already in certain industries, such been undertaken by Hong Kong-based private as in Automotive Manufacturing, where equity players, with the remainder stemming from transaction values are faltering: outbound deal mainland China. volumes stood at just three deals over H1 2011, totaling US$373m, compared to six deals worth In line with the equalization priorities above, a US$1.27bn in the whole of 2010, and nine deals fourth priority is the development of Central and collectively valued at US$1.32bn in 2009. Within Western China, both in terms of industry and the Industrial Products and Services sector, the infrastructure, but also in terms of social services, trend is even more pronounced, with just two including those discussed above. In terms of deals worth an announced US$11m surfacing in industry, a focus on shifting manufacturing inland H1 2011, versus four deals totaling US$1.6bn over from China's prosperous eastern provinces may the same period in 2010. reduce the overall ability to acquire abroad as domestic enterprises use valuable capital and However, while much of the 12th FYP may resources to make M&A or greenfield investments focus on domestic goals that hinder outbound in China's vast hinterland. Such a shift might M&A, from a technology perspective at least, be even more attractive to smaller businesses acquisitions abroad are a necessary component operating in the Transportation, Irrigation, Electric to building the advanced China of tomorrow Power, Mining, Real Estate Construction, Finance that central planners envision. The planned and Commercial Transport/Logistics spaces as process of 'industrial upgrading' will include not they look to focus on opportunities there that are merely an elimination of the old and outdated, highly incentivized and pose fewer barriers than but also include significant investments in the acquiring abroad. new and cutting-edge. This namely refers to funding acquisitions in the so-called 'Seven This goes hand in hand with a broader set of Strategic Emerging Industries' which include national goals to push industry consolidation Energy Efficiency & Environmental Protection, and industrial upgrading - the FYP's fifth pillar. New Energy, Advanced Materials, New Energy In an effort to transform itself from a low-end Vehicles, Next-generation IT, Biotechnology, manufacturing powerhouse to an industrially- and High-end Manufacturing. Lacking sufficient developed, energy-efficient, technological technology at home, Chinese companies in these innovator with diverse capabilities, China will place sectors will certainly be looking abroad to acquire heavy emphasis on encouraging domestic M&A the technologies and know-how they need to which will consolidate key industries, particularly grow. Indeed, an increase in outbound alternative within the Automotive, Steel, Cement, Aluminum, energy and energy conservation transactions is Rare Earth Metals and Heavy Chemicals sectors. testimony to this, with three deals, worth a total In keeping with this, it will also work to eliminate of US$2.3bn, having come to market in H1 2011, outdated capacity, especially in sectors that are far outstripping the US$96m invested abroad highly polluting and/or labor & energy intensive, in this sector over the whole of 2010 and the such as the Steel, Cement, Aluminum, Paper, US$1.7bn in 2009. Glass, Coke, Construction Materials, and Fertilizer industries. Both industrial upgrading and the seven strategic sectors tie in neatly to the Plan's sixth objective; Conversely, efforts will be made to drive that is, promoting environmental protection and consolidation in production-related services, such energy efficiency. This will have many of the same as the Logistics, Industrial Design, Quality Control, implications for outbound M&A as the fifth pillar Financial Services, and Utilities sectors. As a result, of the 12th FYP, and additionally will encourage such consolidation priorities will most certainly further investment in the Hydro, Nuclear and put a damper on outbound M&A transactions, Liquid Natural Gas subsectors, as well as high-tech as capital and operational resources are eaten Energy and Utilities plays in other niche areas, up by domestic activities, leaving little room such as energy storage and smart grids. either financially or strategically, for international investment, except by the largest and/or wealthiest players.

58 Finally, in its last-but-by-no-means-least priority, they will still have to contend with the wider the Plan takes a different tack, laying out frameworks enforced by the State Administration ambitious goals to reform financial and taxation of Foreign Exchange). Moreover, specific systems. The most significant implication for administrative reforms are planned to reduce outbound M&A with regards to proposed tax regulatory hurdles for outbound investment, reforms lie in planned outbound E&R acquisitions. further reducing the obstacles facing companies An intended resource tax (to be levied on looking to make international moves. both domestic resource-rich properties and on It is difficult to neatly categorize the many the extraction of resources themselves) may impacts of the 12th FYP on M&A in a sector- encourage E&R companies to look for raw specific or investor-specific manner. However, materials abroad if they can be bought more it is clear that this set of interconnected goals cheaply there than at home. will have a transformative effect on shaping the In terms of financial reform, broad goals to Greater China M&A landscape - encouraging diversify and expand Financial services and M&A where it is strategically and technologically capital market offerings will have macroeconomic beneficial to the nation, and discouraging it implications for outbound investors: as capital where, despite being potentially lucrative in the becomes easier to access (especially for the short run, it could adversely impact sustainable ambitious private investor), obtaining project economic development goals in the longer term, financing will potentially diminish as a major or negatively affect the country's ability to achieve barrier to conducting transactions abroad. "Inclusive Growth." Nevertheless, the difficult Additionally, with planned exchange rate reforms realities of putting the Plan into practice means and the growing internationalization of the RMB, that it remains to be seen how realistic outbound foreign exchange concerns will also be of lesser investors will truly react to on-paper priorities. importance to outbound deal-makers (although

The planned process of 'industrial upgrading' will include not merely an elimination of the old and outdated, but also include significant investments in the new and cutting-edge

Borderless, boundless 2011 Greater China outbound M&A spotlight 59 The regulatory roundup

Outbound acquisitions stemming from Greater China are as much governed by regulation as they are by corporate strategy. One only need recall the attempt by CNOOC to acquire US firm Unocal in 2005, or Minmetals' first effort to buy up Australian miner OZ Minerals in 2009 to understand that regulatory bodies are the ultimate arbiters when it comes to cross-border deal- making.

However, while regulatory bodies, both domestic It is not the first time that Huawei has come up and foreign, certainly wield powerful arsenals which against the US authorities and lost. The company's are more than capable of stopping an unwanted 2008 bid to acquire a 16.5 percent stake in US takeover in their tracks, the truth of the matter firm 3Com faced political opposition, with CFIUS is that, of late, regulatory rulings have tended eventually ruling against the bidder. More recently, not to impinge on transactions that have made Huawei lost a bid to supply equipment to US it to the deal announcement stage. According to telecoms provider Sprint following Republican Party mergermarket, over the past 18 months, not one disapproval over the deal. outbound acquisition stemming from a Greater However, while the examples above highlight just China bidder has been turned down by either a two instances over 2010 and H1 2011 where local or foreign regulator due to overt political, actual deals have subsequently been rejected antitrust or national security concerns. by regulatory bodies, they are not the only This isn’t to say that regulators have adopted a occurrences where potential acquirers from Greater more lenient approach to policing cross-border China have faced regulatory issues. Perhaps the deal-making. Indeed, the New Zealand Overseas most notable illustration of this was Sinochem's Investment Office, the country's regulatory body, reported interest in gatecrashing BHP Billiton's refused to allow Hong Kong-based Natural Dairy US$39bn hostile takeover offer for Potash Corp, NZ Holdings to acquire certain assets belonging to the Canadian potash producer. Realizing that the CraFarms Ltd, the beleaguered New Zealand-based Canadian authorities would most likely not agree owner and operator of dairy and dry stock farms, to a Chinese SOE taking over a notable Canadian for US$1.06bn in late 2010 following allegations of business (a belief that, with the benefit of hindsight, accounting fraud at Natural Dairy. The case wasn't was correct), Sinochem attempted to team up with helped by the fact that the Director of Natural an Asian sovereign wealth fund and a local pension Dairy's local subsidiary was declared bankrupt fund in order to fund the bid, as well as to mitigate just days before the deal was expected to be any prospective regulatory concerns. However, after completed. testing the waters and realizing that such a move was unlikely to quell the disquiet about a proposed Another outbound transaction that fell outside purchase, Sinochem decided to walk away, leaving mergermarket's deal criteria saw Huawei BHP to fight an ultimately fruitless battle. pay US$2m for various patents from US web server firm 3Leaf only to see the Committee Sinochem's interest in Potash Corp, as well as its on Foreign Investment in the United States subsequent withdrawal from the bidding process (CFIUS), the country's national security review before going formal, highlights a subtle shift in panel, recommend to Huawei that they drop the the approach that regional bidders are adopting acquisition. No formal reason was given for the when hunting abroad. Gone are the days when recommendation but it is widely believed that the Chinese bidders were considered as unsophisticated regulators were concerned about links between newcomers to the international M&A arena. Huawei's founder and China's People's Liberation Indeed, last year, the Financial Times said as much Army, as well as the fact that Huawei did not notify following Sinochem's aforementioned decision to the agency of the proposed acquisition until the walk away from acquiring Australia's Nufarm in Q4 deal was consummated. 2009, quoting a source close to the deal as saying "They were pilloried at the time for a ham-fisted In an unprecedented move, Huawei initially transaction. But you don’t invest if you are worried refused to concede defeat, announcing that they about the underlying quality of the business." would testify before the US government to prove One company that obviously wasn't concerned the accusations false. However, five days later, about Nufarm's underlying quality was Sumitomo, they backed down, announcing that they would the Japanese manufacturing conglomerate, who voluntarily dispose of the assets and cementing the quickly stepped into Sinochem's shoes and snapped perception that Huawei is essentially persona non up the target for AU$14 per share. Nine months grata in the US. later, Nufarm's shares were languishing at around one-third that value.

60 Not only are bidders from Greater China getting SASAC's clampdown on the overseas activities more sophisticated - they are also becoming of SOEs has certainly rattled the SOE community, increasingly confident about their ability to get a with mergermarket quoting an unnamed source deal done. Regardless of where the ultimate blame from one SOE as saying that, "SASAC asked two lay with regards to Huawei's aforementioned third-party assessment firms to evaluate our spat with US regulators over the acquisition of potential overseas acquisition before they gave the 3Leaf, the buy-side signaled clearly that they were green light. If the two firms got different views prepared to commit to unprecedented security on the potential target, SASAC would not have checks by US agencies, saying in their own words: supported the deal." As a result of this clampdown, "The significant impact and attention that this another source noted that, "now, we only look transaction has caused were not what we intended. at opportunities with annual investment yield Rather, our intention was to go through all the no less than the Chinese bank loan interest rate, procedures to reveal the truth about Huawei." The which is currently above 6 percent," while another diplomatic and political fallout that stemmed from spokesperson for a large E&R SOE stated that, "deal the deal prompted the Financial Times' famously price and profitability is now more important than acerbic Lex column to stand by Huawei, pithily ever." surmising that, "Washington is happy for China to And these commentaries do translate into real-life own 10 percent of its Treasury bonds. It should be deal-breakers. China Guangdong Nuclear Power less protective of other assets too." (CGNP) walked away from its US$1.16bn bid Looking forward, recent changes to both Chinese for UK-listed Kalahari Resources after sell-side and overseas M&A legislation are likely to also regulators refused to allow both parties to revise prove difficult for prospective acquirers to interpret CGNP's offer downwards by approximately 6.9 as they look to navigate the muddy waters of percent in light of the Fukushima disaster in Q1 domestic and foreign regulatory jurisdictions. 2011. Similarly, when Barrick Gold barged into Perhaps the single-most important amendment Minmetals' bid for Equinox Minerals by offering is to the State-owned Assets Supervision and just under US$1bn extra for the asset, the Chinese Administration Commission's (SASAC) policy on miner was happy to step aside and let Barrick take SOEs undertaking outbound M&A acquisitions. the prize, obviously believing that they couldn't Implemented on 1 July 2011, the revisions mean justify matching Barrick's price. Other instances that SOEs looking to acquire abroad have to get where SOEs have called off negotiations due to a third-party appraiser to independently value price pressures include Yanzhou Coal's pursuit of the target and notify SASAC of these findings as Australian miner Whitehaven, as well as Sinopec/ well as monitoring such SOEs' derivatives trades CNOOC's H1 2011 bid to acquire OGX. following a number of large-scale losses such as CITIC Pacific's reported US$2bn write-down on wedges that the Australian Dollar would continue to appreciate over 2008.

Borderless, boundless 2011 Greater China outbound M&A spotlight 61 To further complicate matters, another Chinese Overseas, bidders looking to acquire in the UK regulator, this time, the State Administration of should also be aware of the fact that the country's Foreign Exchange (SAFE), recently decreed that all regulators are planning to implement a revised outbound acquirers must submit a tax certificate takeover code which would look to protect UK to them before they can approve any payments targets from the uncertainty that arises during to overseas targets. This process will invariably a takeover when a bidder floats the idea of an lengthen deal completion times which must be acquisition without actually making any formal taken into consideration when prospective bidders commitments. At the same time, the code will also are looking to transact abroad. require targets to name bidders after 28 days from the deal announcement date, and put an end to These moves to clean up the market were break fees, which in the past, have been utilized by undoubtedly driven by a desire to ensure that prospective bidders to deter counterbids. SOEs acquiring overseas don't pursue deals that are overpriced, strategically unsound or are On the face of it, the new takeover code is unlikely unlikely to succeed. Greater China's first wave of to seriously impact acquisitions of UK business by overseas dealings were littered with the wreckage acquirers based in Greater China, primarily because of poorly-considered transactions, undertaken by the new rules are not designed to prevent good inexperienced practitioners, that cost other SOEs - bids from going ahead. In the words of a UK M&A and by extension, the state - dearly. lawyer, "The regulations are intended to discourage unwelcome bid speculation which can destabilize As a result, the government is looking to formalize the target company and undermine the market outbound investments, perhaps realizing that generally. I doubt whether serious bidders, private it's not enough to promote a 'go abroad' equity or otherwise, who have a sound strategic policy without some detailed guidelines being rationale for an acquisition, would be discouraged implemented. The fact that the Ministry of from considering an offer simply because of the Commerce recently introduced an initial draft of its new rules." national security review procedure, a process that will impact future inbound deal flows, indicates that the authorities are looking to manage cross- border M&A transactions with greater aplomb than previously.

While regulatory bodies, both domestic and foreign, certainly wield powerful arsenals which are more than capable of stopping an unwanted takeover in their tracks, the truth of the matter is that, of late, regulatory rulings have tended not to impinge on transactions that have made it to the deal announcement stage

62 About the Chinese Services Group

Borderless, boundless 2011 Greater China outbound M&A spotlight 63 Introducing the Chinese Services Group

The CSG serves as the unifying force to market, facilitate and deliver Deloitte professional services to both multi-national corporations investing into China and Chinese companies expanding overseas. Operating as a platform to leverage China expertise, bridge the cultural gap, and to ensure client service excellence, the Global CSG, in coordination with the China firm, complements a multi-member firm, multi-industry, multi-functional and multi-disciplinary approach.

Deloitte China + the Chinese Services Group = your China dimension

Deloitte is the only professional services firm to have such an expansive and dedicated cross-border network across functions and industries with the ability to react in real time to clients' needs - globally!

Lawrence Chia Global CSG Co-Chairman Beijing, China

If you are considering taking your business to China, Deloitte’s Chinese Services Group can take the mystery out of how to successfully establish and grow your business. Our local presence in your country can give you a resource that understands you, your current business environment, and the new challenges that China poses.

Mark Robinson Global CSG Co-Chairman Toronto, Canada

64 Expanding around the globe…

The CSG network has coverage in over 120 locations around the world spanning six continents!

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How can the CSG add value? With China's continuance as one of the most critical investment priorities globally, the CSG can add value through various channels: Inbound investment Outbound investment ••Leverage China as a "door opener" & assume a high profile ••Facilitate access to industry experts and key decision makers on a subject, providing local expertise cutting across throughout China. geographies & sectors. •• Serve as a channel to communicate time-sensitive regulations ••Raise Deloittes' eminence in the market on issues of key and updates on China for your business. concern to our clients.

Borderless, boundless 2011 Greater China outbound M&A spotlight 65 Deloitte's CSG network

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CSG North & South America Brazil Canada (Western) Central & South America Colombia Mexico Ricardo de Carvalho Beverley Pao Eduardo De Bonis Carlos Amador Lopez David Chen +55 11 5186 1776 +1 604 640 3179 +54 11 5129 2003 +57 1 546 1810 +52 656 5080 6075 [email protected] [email protected] [email protected] [email protected] davidchen@ externosdeloittemx.com Canada (Eastern) Caribbean Cluster Chile Ecuador Tan Ong John Johnston Juan Echeverria Jorge Brito United States +1 514 393 5529 +1 441 299 1301 +562 7 297 224 +593 4 2452 770 Christopher Cooper [email protected] [email protected] [email protected] [email protected] +408 704 2526 [email protected]

66 Contacts

For more information, please contact:

Report Contributors

Mike Braun Ronald Chao David Chen Partner National Leader National Director, Mexico Life Science & Health Care Sector Leader Corporate Financial Advisory Global Chinese Services Group Financial Advisory Services Beijing Ciudad Juárez Shanghai Tel: +86 10 8520 7795 Tel: +52 656 688 6518 Tel: +86 21 6141 1605 Email: [email protected] Email: [email protected] Email: [email protected]

William Chou Anita Ding Claudia Lauw National Managing Partner Partner Managing Partner Technology, Media & Telecommunications Transaction Services Financial Advisory Services Industry Shanghai Jakarta Beijing Tel: +86 21 6141 1648 Tel: +62 21 2992 3100 Ext.33999 Tel: +86 10 8520 7102 Email: [email protected] Email: [email protected] Email: [email protected]

Eric Leung Dora Liu Jeremy South National M&A Transaction Services Leader Audit Partner & Co-Leader Deloitte Global Mining M&A Leader & Hong Kong SAR Global Financial Services Industry Mining Sector Leader Tel: +852 2852 6603 Shanghai Deloitte China Corporate Finance Advisory Email: [email protected] Tel: +86 21 6141 1848 Beijing Email: [email protected] Tel: +86 10 8512 5686 Email: [email protected]

Evans Tomety Yvonne Wu Head of Tax & Legal Services National Managing Partner Deloitte West & Central Africa Life Science & Health Care Industry Lagos Shanghai Tel: +234 01 2717 800 Tel: +86 21 6141 1570 Email: [email protected] Email: [email protected]

For further information, visit our website at www.deloitte.com/cn

Borderless, boundless 2011 Greater China outbound M&A spotlight 67 Notes

68 Contact details for Deloitte’s China Practice

Beijing Hong Kong SAR Suzhou Deloitte Touche Tohmatsu CPA Ltd. Deloitte Touche Tohmatsu Deloitte Business Advisory Services Beijing Branch 35/F One Pacific Place (Shanghai) Limited 8/F Deloitte Tower 88 Queensway Suzhou Branch The Towers, Oriental Plaza Hong Kong 23/F Building 1 1 East Chang An Avenue Tel: +852 2852 1600 Global Wealth Square Beijing 100738, PRC Fax: +852 2541 1911 88 Su Hui Road, Industrial Park Tel: +86 10 8520 7788 Suzhou 215021, PRC Fax: +86 10 8518 1218 Jinan Tel: +86 512 6289 1238 Deloitte & Touche Financial Advisory Fax: +86 512 6762 3338 / 3318 Chongqing Services Limited Deloitte & Touche Financial Advisory Jinan Liaison Office Tianjin Services (China) Limited Unit 1018, 10/F, Tower A, Citic Plaza Deloitte Touche Tohmatsu CPA Ltd. Room 10-12 150 Luo Yuan Street Tianjin Branch 13/F International Trade Center Jinan 250011, PRC 30/F The Exchange North Tower Chongqing Tel: +86 531 8518 1058 189 Nanjing Road 38 Qing Nian Road Fax: +86 531 8518 1068 Heping District Yu Zhong District Tianjin 300051, PRC Chongqing 400010, PRC Macau SAR Tel: +86 22 2320 6688 Tel: +86 23 6310 6206 Deloitte Touche Tohmatsu Fax: +86 22 2320 6699 Fax: +86 23 6310 6170 19/F The Macau Square Apartment H-N 43-53A Av. do Infante D. Henrique Wuhan Dalian Macau Deloitte & Touche Financial Advisory Deloitte Touche Tohmatsu CPA Ltd. Tel: +853 2871 2998 Services Limited Dalian Branch Fax: +853 2871 3033 Wuhan Liaison Office Room 1503 Senmao Building Unit 2, 38/F New World International 147 Zhongshan Road Nanjing Trade Tower Dalian 116011, PRC Deloitte Touche Tohmatsu CPA Ltd. 568 Jianshe Avenue Tel: +86 411 8371 2888 Nanjing Branch Wuhan 430022, PRC Fax: +86 411 8360 3297 11/F Golden Eagle Plaza Tel: +86 27 8526 6618 89 Hanzhong Road Fax: +86 27 8526 7032 Guangzhou Nanjing 210029, PRC Deloitte Touche Tohmatsu CPA Ltd. Tel: +86 25 5790 8880 Xiamen Guangzhou Branch Fax: +86 25 8691 8776 Deloitte & Touche Financial Advisory 26/F Teemtower Services Limited 208 Tianhe Road Shanghai Xiamen Liaison Office Guangzhou 510620, PRC Deloitte Touche Tohmatsu CPA Ltd. Unit E, 26/F International Plaza Tel: +86 20 8396 9228 30/F Bund Center 8 Lujiang Road, Siming District Fax: +86 20 3888 0119 / 0121 222 Yan An Road East Xiamen 361001, PRC Shanghai 200002, PRC Tel: +86 592 2107 298 Hangzhou Tel: +86 21 6141 8888 Fax: +86 592 2107 259 Deloitte Business Advisory Services Fax: +86 21 6335 0003 (Hangzhou) Company Limited Room 605, Partition A Shenzhen EAC Corporate Office Deloitte Touche Tohmatsu CPA Ltd. 18 Jiaogong Road Shenzhen Branch Hangzhou 310013, PRC 13/F China Resources Building Tel: +86 571 2811 1900 5001 Shennan Road East Fax: +86 571 2811 1904 Shenzhen 518010, PRC Tel: +86 755 8246 3255 Fax: +86 755 8246 3186 About Deloitte Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee, and its network of member firms, each of which is a legally separate and independent entity. Please see www.deloitte.com/cn/en/about for a detailed description of the legal structure of Deloitte Touche Tohmatsu Limited and its member firms.

Deloitte provides audit, tax, consulting, and financial advisory services to public and private clients spanning multiple industries. With a globally connected network of member firms in more than 150 countries, Deloitte brings world-class capabilities and deep local expertise to help clients succeed wherever they operate. Deloitte's approximately 170,000 professionals are committed to becoming the standard of excellence.

About Deloitte China In China, services are provided by Deloitte Touche Tohmatsu and Deloitte Touche Tohmatsu CPA Limited and their subsidiaries and affiliates. Deloitte Touche Tohmatsu and Deloitte Touche Tohmatsu CPA Limited are, together, a member firm of Deloitte Touche Tohmatsu Limited.

Deloitte China is one of the leading professional services providers in the Chinese Mainland, Hong Kong SAR and Macau SAR. We have over 8,000 people in 15 offices in Beijing, Chongqing, Dalian, Guangzhou, Hangzhou, Hong Kong, Jinan, Macau, Nanjing, Shanghai, Shenzhen, Suzhou, Tianjin, Wuhan and Xiamen.

As early as 1917, we opened an office in Shanghai. Backed by our global network, we deliver a full range of audit, tax, consulting and financial advisory services to national, multinational and growth enterprise clients in China.

We have considerable experience in China and have been a significant contributor to the development of China's accounting standards, taxation system and local professional accountants. We also provide services to around one-third of all companies listed on the Stock Exchange of Hong Kong.

This publication contains general information only, and none of Deloitte Touche Tohmatsu Limited, its member firms, or their related entities (collectively, the “Deloitte Network”) is, by means of this publication, rendering professional advice or services. Before making any decision or taking any action that may affect your finances or your business, you should consult a qualified professional adviser. No entity in the Deloitte Network shall be responsible for any loss whatsoever sustained by any person who relies on this publication.

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