China & Hong Kong Mergermarket trend report Q1 2016 a i Inbound $2..3bn -84.2% = total targeted activity Domestic $89.7bn -23.8% Outbound $84.5bn 126.9% TMT $24.3n 15.2% Private equity $7.9bn 68.5% buyouts Private equity $8.4bn 162.8% exits China & Hong Kong Following a record year for China’s M&A in 2015, China & Hong Kong M&A sectors in response to the government’s “Made in China 2025” initiative government guidelines issued in July 2015 to enhance the development activity continued on an upward trajectory during the first quarter of 2016. that is pushing corporates to revitalize and upgrade capability in these of Internet finance. Data shows a positive correlation between TMT A total of 398 deals amounted to US$ 92bn in Q1 2016, hitting the highest sectors specifically, according to Mergermarket intelligence. More outbound activity and online payments: half of the large-cap deals (> US$ 1bn) in Q1 deal volume on Mergermarket record (since 2001), and accounting for analysis will be found in Spotlight on Page 2. the sector were related to online finance payment systems. As for the a 65.6% share of the total deal value in Asia-Pacific (excl. Japan) which saw whole Financial Services industry, deal-making saw a boost with deal 731 deals totaling US$ 140.2bn. The top deals in Q1 2016 correlate with the SOE’s reform strategy. Three value jumping to US$ 15.1bn from 32 deals, up 81.7% by value compared out of five of the highest valued deals were backed by SOEs, namely, to the same period last year (US$ 8.3bn, 22 deals). Chinese corporates have ramped up their overseas shopping spree in the acquisition of CITIC real estate business by China Overseas Land and Q1 2016 after a record value in 2015, up to a level that has surpassed US Investment, the merger of Cloud computing provider China Great Wall After an active year in 2015 for overall private equity (PE) activity, buyout outbound M&A value by 83.4%. The 97 outbound deals in the first quarter Computer Shenzhen and military intelligence equipment maker Greatwall deals signaled signs of future growth for the region and firms are taking amounted to US$ 84.5bn, already just 20% behind 2015’s annual tally and Information Industry, and the acquisition of 23.69% stake of China Guangfa advantage of favorable exit conditions at the same time, 2016 has a significant 126.9% jump compared to Q1 2015 (US$ 37.2bn). China’s Bank by China Life Insurance. begun with similar themes. There were 21 PE buyouts worth US$ 7.9bn outbound activity into Europe has reached US$ 52.4bn, with 36 deals announced during Q1 2016, representing a 68.5% increase compared to recorded, taking a 62% share of the total overseas investment by Chinese Foreign investors are holding back on investment into China & Hong Kong Q1 2015 (US$ 4.7bn, 26 deals). For PE exits, the 26 transactions amounting bidders. At the same time, China and Hong Kong are extending into the US however, even though China’s Ministry of Commerce has began to support to US$ 8.4bn was the highest Q1 value in Mergermarket record. M&A market, posing an increased challenge to local bidders - a total of 25 inbound investors to participate in the reform of SOE’s. Inbound activity saw deals worth US$ 26.7bn have almost doubled 2015’s total of US$ 13.3bn in a sharp 84.2% decline compared to the value of Q1 2015 (US$ 14.6bn, 34 The latter half of 2015 saw inbound M&A come to a standstill after the Q1 2016, with business services being the most targeted sector, attracting deals), recording a mere US$ 2.3bn across 35 deals, and indicating caution stock market crash, but this could have been an even bigger push for three deals worth US$ 6.6bn. amongst foreign management teams in light of a slowing Chinese economy. more outbound M&A that is also being seen in 2016. This activity is expected to continue, and companies are becoming well known for their Industrials & Chemicals (US$ 52.1bn, 29 deals) dominated outbound M&A in TMT remained as the most active sector in terms of deal value with 80 deals brand seeking posing competition to the likes of US counterparts. terms of deal value and deal count. Outbound acquisitions by State Owned valued at US$ 24.3bn, taking a 26.4% share of the region’s total deal value. Enterprises (SOE’s) are expected to target the manufacturing and industrial The Fintech industry is seeing plenty of opportunities with the help of Quarterly M&A value Sector breakdown PE activity 2016 92.0 Other 2015 132.3 155.5 120.5 228.4 50 140 Business Services 45 44.2 120 Consumer 2014 93.5 146.1 40 63.2 82.2 35 100 Pharma, Medical & Biotech 34.9 30 80 2013 47.6 59.5 Real Estate 29.7 57.7 25 26.3 60 20 Financial Services Deal Deal count 15 17.8 39.1 39.0 of deals (US$bn) Value 40 2012 15.5 37.2 39.5 14.6 Industrials & Chemicals 10 13.0 13.4 9.9 20 8.4 5 7.2 8.1 7.9 TMT 6.7 1.1 3.7 1.2 4.6 4.6 5.5 26.2 51.0 0 0 2011 30.9 39.1 0 5 10 15 20 25 30 35 40 45 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Private equity buyout value Private equity exit value Deal value (US$bn) Private equity buyout deal count Private equity exit deal count 2015 Q1 2016 Q1 Value of deals (US$bn) Q1 Q2 Q3 Q4 China & Hong Kong trend report Q12016 www.mergermarket.com 2 China & Hong Kong Top deals Deal Ann. Bidder Bidder Buy-side Target Target Seller value Sell-side advisors date company country advisors company sector company (US$m) 5,248 14-Mar China Overseas Land and Hong FA: HSBS CITIC Real Estate Group Co Ltd; Real Estate CITIC Limited FA: CITIC Securities Investment Ltd Kong and CITIC Pacific Limited LA: Jingtian & Gongcheng; LA: Freshfields Bruckhaus Norton Rose Fulbright Deringer; JunHe 4,902 25-Feb China Great Wall Computer China FA: Haitong Securities Greatwall Information Industry Technology FA: Huarong Securities Shenzhen Co Ltd Co Ltd LA: King & Wood Mallesons LA: Hunan Qiyuan Law firm 4,346 23-Mar CRED Holding Co Ltd China FA: China International Capital Liaoning Zhongwang Group Co Industrials & China Zhongwang Holdings - Corporation; Huatai United Ltd Chemicals Limited Securities LA: Haiwen & Partners 3,567 29-Feb China Life Insurance Company China FA: China International Capital China Guangfa Bank Financial Citi; IBM Credit LLC FA: Citi Limited Corporation; UBS (23.69% Stake) Services LA: Cravath, Swaine & Moore; Jin LA: Cleary Gottlieb Steen & Mao Partners; Skadden Arps Slate Hamilton; Haiwen & Partners Meagher & Flom 3,500 19-Jan An investor group led by Tencent China - Meituan-Dianping Technology FA: China Renaissance Partners; Holdings Ltd Goldman Sachs LA: Skadden Arps Slate Meagher & Flom China & Hong Kong trend report Q12016 www.mergermarket.com 3 China & Hong Kong Spotlight: Outbound M&A Top outbound deals After a record 2015 for China’s outbound M&A (US$ 104.7bn, 359 deals), Boosted by the Syngenta deal, Europe remains the most targeted region by Deal China & Hong Kong’s appetite for buying abroad appears to be growing in attracting US$ 52.4bn-worth of deals across 36 transactions, nearly equal value Deal details 2016 with 97 deals worth US$ 84.5bn, already almost eclipsing 2015 annual to 2015’s total already (US$ 52.7bn, 118 deals). Industrials & Chemicals (US$m) total. was driving the M&A boom targeting this region with 15 deals worth US$ 45,860 Announcement date: 03-Feb 48.6bn, already nearly half of total deal count (34 deals) in last year. Led by state owned acquirers, such as ChemChina who bought Switzerland’s Target: Syngenta Syngenta for US$ 46bn in February, Chinese companies have emerged as a China’s investment into the US reached a new record high at US$ 26.7bn (25 fierce competitor for deal making, demonstrated by over a quarter (26.9%) deals) during Q1, almost double the full-year value in 2015 (US$ 13.3bn, 80 Bidder: China National Corporation of global cross-border M&A (US$ 310.6bn), a steep increase considering no deals). Anbang Insurance, one of the most aggressive acquirers in recent full year has ever surpassed 7.6%. years, was in the middle of a bidding war for what would have been its largest US outbound acquisition on record when it offered to buy Starwood The high level of outbound activity was in part fuelled by an ease to obtain Hotels and Resorts for US$ 14.4bn, however, linking with a theme being debt financing. Chinese banks see lending for the purchase of overseas seen in M&A during 2016, the offer was withdrawn. 6,500 Announcement date: 12-Mar assets safer than those based in China, given a slowing domestic economy, according to Mergermarket intelligence. Corporate companies are hedging Target: Strategic Hotels & Resorts against the yuan’s depreciation by purchasing aboard, teamed with some Similarly to Europe, Industrials & Chemicals (US$ 52.1bn, 29 deals) was the foreign businesses having lower valuations in 2016 compared to last year, hottest sector in terms of both deal value and volume for targeting the US, Bidder: Anbang Insurance Group particularly for some listed targets, where valuations on some stock markets more than three times higher than last year’s annual value (US$ 15.7bn, 76 are showing lower prices than China.