(29 January 2021 – China) What is driving standout growth in China’s merger and acquisition (M&A) activity as investment banking (IB) deal flow in other major markets flounders?
The Chinese government’s COVID support measures and an accelerated state-owned enterprise (SOE) reform process are behind a massive 30 percent increase in the country’s mergers-and-acquisitions (M&A) activity in 2020. However, regional treasurers in Asia hoping to boost growth and optimise liquidity through lucrative deals in mainland China might be disappointed as the spike in M&A in China is largely internal – driven also by a sizeable increase in private equity (PE) M&A – and offset by a decrease in cross-border deals.
According to PwC’s China M&A 2020 Review & 2021 Outlook, China M&A activity increased by 30 percent to US$733.8 billion in 2020, the highest since 2016, while deal volumes increased by 11 percent.
China M&A is likely to continue to have a domestic theme in 2021, supported by SOE reform, and the Dual Circulation and Industrial Upgrade programmes, according to the report. The International Monetary Fund (IMF) has forecasted China's economy to expand 8.1 percent in 2021. The country's full-year 2020 GDP growth was 2.3 percent, driven by an annualized 6.5 percent growth rate in Q4 2020.
“Deal values held up after a sharp lockdown dip in February, bouncing back strongly over the next few months and significantly surpassing prior year in the second half of 2020. The increase in deal values was driven by strong SOE participation in both domestic strategic and financial-buyer deals, mitigated by a steep decline in cross-border M&A” stated PwC Deals Leader for APAC, David Brown.
“We expect some increase in M&A volumes overall in 2021, largely driven by domestic and PE activities, although whether the dollar value of M&A increases year-on-year will depend upon the extent of continued state-involvement. Overall levels of outbound M&A are likely to increase from the low of 2020, albeit this may take some time to play through, so we do not see 2019 levels being surpassed” Mr Brown added.