China's outbound M&As' to keep rising

Deloitte: China's outbound M&As to keep rising
Updated: 2012-11-15 08:03

ByLi Jiabao ( China Daily)

 

Chinese buyers of European targets 'are likely to be challenged by different management cultures'
China's outbound mergers and acquisitions will continue to increase in the next 12 months, according to a report released by Deloitte China on Wednesday.
The company said the value of outbound M&As was $52.2 billion in the first three quarters of this year, despite a slowdown in economic growth.
Up to 90 percent of survey respondents suggested that Chinese outbound M&A flows will increase in the next 12 months, and 66 percent said they believed that the increase will be more than 10 percent.
"Despite a confusing macroeconomic outlook, M&A commentators remain bullish on future Chinese outbound deal flows," said the report, which was based on an online survey.
The survey was conducted by Deloitte China in August and September and polled 69 M&A practitioners with experience or knowledge of Greater China M&A transactions.
"However, more than three-quarters, or 78 percent, of respondents believe that the bulk of outbound deals over the next 12 months are likely to be worth less than $300 million apiece," Lawrence Chia, managing partner and co-chairman of global Chinese services group of Deloitte Touche Tohmatsu Ltd, said during a news briefing on Wednesday.
The first three quarters of this year saw Greater China outbound M&As' value reach $52.2 billion with 133 deals. Compared with the $44.9 billion investment of 145 transactions in the same period of 2011, the number of deals this year fell by 8.2 percent, while the value of outbound investments rose by 16.2 percent to its highest level since 2005, the report said.
Energy and resources deals continued to dominate the outbound M&A landscape, accounting for 29 percent of the total number in the first three quarters and 68 percent of the total transaction value in the same period.
Consumer business and transportation deals were the second-most numerous and valuable, accounting for 26 transactions that were collectively worth $6.8 billion. This equates to a 20 percent market share by deal numbers and a 13 percent share by value, according to the report.
Western Europe received the majority of Chinese investment in the first three quarters, getting 31 announced bids worth a total of $12.5 billion. And the bids were mainly targeted at advanced manufacturing, according to Chia.
"Nonetheless, Chinese investors spent more acquiring assets in North America than in Western Europe, primarily because of CNOOC's $17.6 billion bid to acquire Canada's Nexen, a deal announced in July 2012," he added.
As for deal size, the number of transactions worth $5 million to $300 million accounted for 59 percent of all transactions in the first three quarters, up 1 percent from a year earlier.
"Respondents believed that the continued implementation of the 12th Five-Year Plan (2011-15) will have the most positive effect on Chinese outbound M&A activity, while softening economic growth is unlikely to have much effect on potential outbound deal flow at all," Chia said.
Dirk Haellmayr, partner in Chinese Services Group of Deloitte & Touche GmbH, added: "As China boosts its emerging strategic industries and brings its economy to upper industrial chains, it will look around the world for advanced technology and new forms of innovation".
Chinese investors are likely to acquire technological best practices through investment in North America and to purchase reputable brands and technological best practices by buying European targets, the report said.
South America and Asia were listed as the most likely destinations for outbound manufacturing acquisitions, while South America is likely to witness the majority of Chinese outbound energy and resources acquisitions. Technology, media and telecommunications acquisitions are likely to continue to target North American assets over 2013 despite regulatory obstacles.
Chia warned that domestic regulations that discourage foreign ownership of local assets will be the biggest obstacle facing potential Chinese bidders that target North American businesses in 2013. Likewise, Chinese buyers of European targets are likely to be challenged by different management cultures, while Chinese acquirers of Asian targets could come across reliability issues when dealing with counterparties, according to the report.
Close to one-fifth of the respondents held their own deal as being "not successful" or worse, while 44 percent said that their transactions were successful, the report said.
lijiabao@chinadaily.com.cn

(China Daily 11/15/2012 page14

Bright Foods Weetabix acquisition signals growing interest of emerging markets for Europe

The acquisition of Weetabix is the biggest sign yet of emerging market interest in Europe, according to industry commentators.

http://www.foodnavigator.com/Financial-Industry/Weetabix-takeover-signals-focus-on-EU-from-emerging-markets

Dynamic domestic players and focused multinationals are helping China churn out a growing number of innovative products and services. Intensifying competition lies ahead; here’s a road map for navigating it.

This is an excellent article on the growing movement of innovations in China that will be benefit Chinese companies looking to expand internationally.
http://www.mckinseyquarterly.com/A_CEOs_guide_to_innovation_in_China_2919

Outbound M&A hits record high, says PwC report

By Hu Yuanyuan (January 13, 2012 9:56 PM)      

BEIJING - Chinese outbound merger and acquisition (M&A) deals reached a record high of $42.9 billion in 2011, an increase of 12 percent year- on-year, despite the global economic slowdown, according to the accountancy company PricewaterhouseCoopers LLP (PwC) on Friday.

A total of 207 outbound M&A deals were signed last year, up 10 percent from 2010.

"Those figures indicate that Chinese investors' appetite for deals is stronger than ever, across a wide range of industries and geographical locations," said Leon Qian, PwC China's Transaction Services Partner.

The strong growth in outbound deals also pushed the country's overall M&A activity up by 5 percent to 5,364 deals, the highest-ever annual total. Domestic deals climbed 11 percent to 3,262.

"Despite the global macroeconomic climate, confidence among investors looking for M&A deals both within China and abroad remains surprisingly robust," Qian added.

As China moves into a new phase, M&A is emerging as a key enabler of consolidation, growth, market positioning and the acquisition of strategic assets and expertise.

There were 16 outbound M&A deals valued at more than $1 billion by Chinese buyers last year, compared with 12 in 2010. Fourteen of those deals were in the resources and energy sectors.

"Chinese buyers now attach more attention to M&A opportunities in the industrial-products sectors, reflecting the country's gradual shift to a consumer-driven economy," said Edwin Wong, PwC China's International Tax Services Leader. The sluggish global economy, however, is affecting foreign M&A buyers wanting to make a strategic purchase in China, PwC said in the report. 

Economic uncertainties in home markets led to an 11 percent decline in foreign M&A activity in China to 482 deals, falling most notably in the second half of last year after a rebound in 2010.

Meanwhile, private equity (PE) is emerging as a key provider of growth capital for China's small and medium-sized enterprises, as they aim to expand despite challenges in raising funds amid fiscal tightening and uncertainty in the equity markets.

The number of larger PE deals (those exceeding $10 million) increased by 18 percent to 437 transactions in 2011 - the highest number ever, according to the PwC report. Private-equity fundraising also reached a record high in 2011, totaling $44.1 billion for investment in China. Yuan-denominated funds accounted for 60 percent of the total, continuing the trend of the previous two years.

"A key trend is the expansion of the domestic Chinese PE industry; there are now many domestic players who can compare advantageously to their better-known global peers," said Qian.

Chinese Rich seek offshore wealth management

Interesting article that makes a lot of sense as Chinese entrepreneurs look overseas to expand their empires as well as keep some assets overseas as a hedge for the future.

By Cai Xiao
China Daily

BEIJING - Chinese commercial banks should prepare to manage offshore wealth to meet the demands of the rich overseas, according to a report released on Thursday.
The report, carried out by the Boston Consulting Group and China Construction Bank, also said the value of China's individual investable assets will come to 62 trillion yuan ($9.8 trillion) by the end of 2011.
The report was compiled from the results of a survey conducted among more than 2,000 wealthy respondents - technically deemed high-net-worth (HNW) individuals - and from interviews conducted with various private-bank relationship managers.
Of the total amount of individual investable assets, about 27 trillion yuan (44 percent) came from the type of households polled in the survey. There is expected to be about 1.21 million such households this year, an increase of 42 percent over the past three years.
According to the report, 35 percent of wealthy Chinese are in Beijing, Shanghai and Guangdong. Wealth is also spreading rapidly to places such as Shanxi and Hainan provinces, which are rich in natural resources.
Nearly 60 percent of wealthy Chinese are entrepreneurs who made their money by starting their own businesses. Many of them have taken to looking to expand their endeavors abroad.
According to the report, private enterprises contribute about one-third of the total value of China's trade. In the first three quarters of 2011, they generated about $739.4 billion in trade, up about 40 percent from the same period a year earlier.
"As more and more Chinese entrepreneurs expand their businesses abroad, Chinese commercial banks should now start preparing to manage wealth offshore," said Wei Chunqi, general manager at China Construction Bank's wealth management and private banking department.
The report said Chinese commercial banks could test out wealth-management arrangements in Hong Kong, which has well-established legal, accounting, and regulatory systems.
"There are three ways a Chinese commercial bank can set up an offshore wealth-management arrangement: Setting up its own branches overseas, acquiring a financial institution abroad or establishing a joint-venture company with a foreign institution," said Wang Nan, a principal at Boston Consulting Group and a chief author of the report.
Wang said the demand for offshore products increases with wealth.
Of those with more than 50 million yuan in assets, 22 percent have already used offshore products and services. Of those with more than 300 million yuan in assets, about 70 percent expect to see more exposure to offshore products and services in the future.
"Security and privacy were big considerations for me when I was choosing a wealth-management agency," said Xiao Baiyou, at Outlet China Ltd, which develops, operates and invests in outlet malls in China.
Xiao said many wealthy Chinese want to have their wealth managed in Singapore or Northern Europe, both places believed to have good legal, accounting and regulatory systems.
Ji Ran contributed to this story.
China Daily

COFCO plans to expand global logistics system

COFCO certainly has the clout and ambition to become a global player against the likes of Cargill and ADM - their farm to fork strategy indicates more than just commodity food staples too.



A China National Cereals, Oil and Foodstuffs Corp (COFCO) booth at an exposition in Beijing. As China's largest State-owned agricultural company, COFCO is seeking to expand overseas more rapidly. [Photo / China Daily]

Deals being negotiated and total spending could be substantial
BEIJING - China National Cereals, Oil and Foodstuffs Corp (COFCO), the largest State-owned agricultural conglomerate, has made steady progress in its overseas investment, said Chairman of the Board Frank Ning.
COFCO plans to build up its global logistics and processing systems next year, handling products such as corn, soybeans, rapeseed oil, sugar and wheat, Ning said.
"Some deals are now being negotiated. We will invest wherever it is necessary," Ning said, suggesting the total amount could be huge. "We have laid the groundwork for expansion," he said, without giving further details.
In November, COFCO announced plans to invest overseas through mergers and acquisitions over the next five years. The company will focus on a number of foreign markets including the United States, Australia and Southeast Asia, said Jiang Hua, a board member.
Ma Wenfeng, a senior analyst at Beijing Orient Agribusiness Consultant Ltd, a major agricultural consultancy, said now was a good time for foreign acquisitions.
As developed countries are struggling with a sluggish economic recovery, Chinese companies could make acquisitions more cheaply, Ma said.
"Overseas expansion will make COFCO more competitive in the global food industry," he added.
With COFCO's overseas network, China's processing companies could import agricultural products at lower prices, Ma added.
"This will give Chinese companies more leeway in the international food market," he said.

China is the world's largest importer and consumer of a number of agricultural products including cotton and soybeans. Analysts have forecast that the nation will become the world's largest food importer within the next five to 10 years.
According to the Ministry of Agriculture, China's agricultural trade surged to $122 billion in 2010 from $28 billion in 2001. Imports jumped to $72.6 billion in 2010 from $12 billion 10 years earlier, an annual rise of 22.3 percent.
A trade deficit in agricultural products also emerged and widened rapidly during these years. In 2010, China's trade deficit in the sector increased to $23 billion from $4.6 billion in 2004.
"With overseas investment, we could make use of resources in the international food market," Ning said.
Domestically, COFCO has expanded to cover agricultural production, processing and retailing. The company has so far cooperated with more than 1.55 million farming households.
The farmers grow crops on 233,000 hectares of farmland for COFCO's processing businesses.
"The farmers trust COFCO because we are a State-owned company. This is our advantage in competition," Ning said.
"We intend to foster a whole business chain from farms to consumers' tables, and we will continue striving to create value for farmers," he added.