There were 381 deals by Chinese bidders valued at US$94.6 billion in the second quarter of 2017. While that represents a scant five more deals than in Q1, it also shows a value jump of 34%.
Domestic purchases accounted for the majority of the value—US$58.24 worth—amid Beijing’s push to limit capital outflows. However, the quarter’s largest deal was an exception: The state-owned China Investment Corporation agreed to pay US$13.7 billion for UK warehouse firm LogiCor Europe.
The Industrials and Chemicals sector had the highest deal value of any sector in Q2 with 118 deals worth US$17.4 billion. Among the main contributors to this total was Gaoqiao Petrochemical’s US$1.6 billion agreement to purchase a 50% stake in Shanghai SECCO Petrochemical from UK energy giant BP.
The US had the most targets by China-based acquirers in Q2, with 14 deals valued at US$2.4 billion, but Germany, the UK and Australia also saw eight such deals each. In one of the largest outbound deals of the quarter, Chinese investor Creat Group agreed to pay US$1.2 billion for German blood plasma maker Biotest, after paying US$1.1 billion for UK-based blood plasma company BPL Holdings last year.
Despite the quarterly uptick, China M&A activity remained significantly lower compared to the previous two years. According to the Ministry of Commerce, total China outbound investment for the period between January and May of 2017 lags a full 53% behind the same period in 2016. The Chinese government toughened its stance toward outbound M&A in June, ordering a group of domestic banks to evaluate their exposure to offshore purchases by several large acquirers.
Major industries for China outbound investment include commercial service, manufacturing, information transmission and software and information technology service. Chinese companies continue to target technology-driven companies for outbound acquisition, but such efforts have been hampered by closer scrutiny from regulatory authorities such as the Committee on Foreign Investment in the United States (CFIUS).
And although megadeals continue to decline, the interest from different sectors, especially from the private sector, for medium- or small-size deals continues to grow, especially for those Chinese companies already holding assets outside China. Such companies can leverage their non-China assets to access foreign currency to pay for new acquisitions.
While there are plenty of challenges that may cause greater volatility in China’s outbound M&A trajectory in the coming years, economic fundamentals suggest that China is still only at the beginning of a secular catch-up in global investment, and Chinese companies can be expected to spend hundreds of billions of dollars on overseas deals in the coming decade if short-term speed bumps are overcome. As outlined in the recent White & Case report "China’s rise in global M&A: Here to stay," the speedbumps likely will be overcome, potentially enabling China to achieve an average annual M&A value of as much as US$190 billion over the next 10 years.