Chinese companies deployed US$426 billion on domestic and foreign company acquisitions in 2019, 10.4 percent lower than a year prior. The number of merger and acquisition (M&A) deals has declined by 10.1 percent as compared with the previous year, according to data from Dealogic.

US-China trade tensions, Beijing’s capital controls, reorganisation of state-owned enterprises (SOEs), and the country’s bid to reign in corporate debts have weighed on deal bankers and companies in recent years. Beyond China, regulators across the globe are also stepping up scrutiny of Chinese investments.

Has the coronavirus pandemic stamped out deal-making appetite, or is it an opportunity for businesses to drive transformation using mergers and acquisitions (M&A)?

Revived Interest in Outbound M&A Activities

Chinese M&A activity was once dominated by outbound deals. But much has changed since the Chinese government’s move to halt “irrational” overseas investments. The total value of cross-border M&A transactions conducted by Chinese companies has decreased by 23.8 percent year-on-year to US$54 billion in 2019, while the number of deals fell by 12.1 percent to 435, Dealogic data shows.

With the ongoing coronavirus pandemic causing further supply chain disruptions globally, companies are realising the pressing need for diversification in their operations now more than ever.

Will enhancing operational capabilities play a larger role in further driving the M&A agenda, apart from expanding their footprint and scaling up in size?

On the supply side, investment opportunities are starting to emerge around the world as cash-starved companies prepare to weather the storm. A larger number of Chinese companies have reportedly requested for proposals on targets in Europe as they seek to take advantage of the asset-price downturn sparked by the pandemic.

Based on the new Deal Makers Investment Banking (IB) Forecast program from East & Partners and Dealogic, 16.1 percent of the Top 100 revenue ranked corporates in China expect to actively pursue cross-border M&A deals in the next 12 months, with the average deal value being US$9,410 million.

Cross-Border M&A Outlook

of Chinese corporates say they intend to actively
pursue overseas M&A in the next 12 months

Source: East & Partners and Dealogic, Deal Makers - The IB Forecast - H1 2020

Looking to Western Europe, USA and Southeast Asia

A majority of corporates across the globe nominate Western Europe as their top M&A destination, cited by 84.5 percent of large corporates. The USA was ranked second at 55.7 percent. Within Asia, Southeast Asia has been highlighted as the most favoured destination as corporates not only from China but globally continue to review their Asian footprint and seek to tap into the emerging economic growth potential of Indonesia, Philippines, and Vietnam.

Top Markets for Planned Cross-Border M&A Deals
% of Total

Source: East & Partners and Dealogic, Deal Makers - The IB Forecast – H1 2020

Spotlight on Consumer & Retail, Technology, and Energy & Natural Resources

By sector, Consumer & Retail is ranked top among M&A activities to be pursued in the coming 12 months, nominated by close to one in two large corporates globally half (47.4 percent). This is mainly driven by growing demand for products, as opposed to pure geographical expansion.

While Technology has always been a strategic focus as businesses continue to pursue industrial upgrades, the coronavirus pandemic has further increased the appeal of technology companies. It is becoming clear that the outbreak has fundamentally changed the way people work and consume content. Although regulators across the globe including the Committee on Foreign Investment in the United States (CFIUS) and the European Commission are adopting a tougher stance in reviewing foreign acquisitions of important technologies, we expect corporates to continue targeting technology transactions.

Energy & Natural Resources, which is also a strategic priority for governments, rounds up the top three industries of focus. In a recent news story in the Bloomberg News, CNIC, a Chinese state-backed investment fund is reportedly considering purchasing about a 10 percent stake in Greenko Group, one of India’s largest renewable energy companies.

M&A Key Strategic Sectors
% of Total

Source: East & Partners and Dealogic, Deal Makers - The IB Forecast – H1 2020

East & Partners third and final Research Note in the Capital Markets Forecast series concludes next month with a summary of European investment banking market insights.