Chinese firms will continue buying overseas businesses: survey

Another good-news survey:

OUTLOOK FOR CHINA OUTBOUND M&A ACTIVITY REMAINS ROBUST DESPITE THE CREDIT CRUNCH
The global economic downturn does not appear to have dampened Chinese corporates’ appetite for overseas acquisitions. A survey sponsored by The Royal Bank of Scotland has found that approximately two-thirds of respondents expect Chinese outbound M&A (merge and acquisition) activity to increase over the next 12 months.
Conducted by the publishing division of mergermarket, Remark, the survey canvassed the opinions of 106 respondents from China and Hong Kong, including Chinese corporates who have undertaken M&A overseas, financial advisory professionals, and private equity firms, on their predictions for and issues surrounding Chinese outbound M&A.
The key findings of the survey include:

• 63% of respondents expect the level of outbound M&A activity to increase. Only 21% of respondents expect activity to drop.
• Corporate respondents who have been directly involved in a Chinese outbound transaction are more bullish on market prospects for next year. Between 65-70% of such respondents believe that Chinese outbound M&A activity will increase in 2009, compared to just 27% of corporate respondents who have not undertaken an outbound transaction.
• 50% of respondents expect Chinese outbound bidders to target Asian businesses over the next year, with a notable proportion also believing that Chinese bidders will eye North American and European targets (both 39%) over the same time period. At the same time, a sizable 37% cite Africa as the region that Chinese buyers will look to target most aggressively.

In 2008, China outbound M&A transactions volume increased by 2.5 times to USD42.3 billion from 57 announced deals. China outbound M&A volume (in terms of value on announced basis) accounted for 24.1% of last year’s total Asia outbound volume and 10.4% of overall Asia Pacific M&A activities, in terms of volume, according to mergermerket.

• Market share expansion and the acquisition of technology and expertise are the two key driving forces for Chinese outbound M&A activity. Acquiring market share abroad is cited by 52% of respondents as the main reason why a Chinese corporate would undertake a foreign acquisition, while 47% also note that acquiring technology/expertise would be a primary factor.
• The majority (62%) of respondents believe that Chinese bidders targeting foreign businesses are not being adversely affected by the credit crisis.
• 57% of respondents believe that the ability of Chinese bidders to finance overseas bids has been affected by the credit crunch while the remainder – a sizable 43% – think that deal financing has not been impacted.
• Private equity respondents are more bearish than their corporate counterparts on the ability of Chinese bidders to finance outbound transactions in light of the current credit crisis. Just

20% believe that bidders’ financing abilities will be unaffected by the crisis, as opposed to 44% and 47% of advisory and corporate respondents respectively.

• Respondents are less persuaded about corporates buying abroad in order to expand into specific high-growth economies or due to the fact it is easier to acquire abroad than domestically, with each reason garnering just 19% and 9% of responses respectively.
• In terms of deal size, a large majority (63%) of the respondents believe that the bulk of Chinese outbound acquisitions will occur within the mid market and would be under USD500 million, with 42% judging that the lion’s share of deal flow will take place in the USD250-500 million space.

Michael Bracken, Managing Director, Corporate Finance Group Asia at RBS, comments: “This survey confirms what we see in the market as Chinese corporates remain eager to expand through global acquisitions. This is part of a continuation of a longer term trend and for which the current difficult global economic environment presents opportunities. RBS works with a range of clients in helping them achieve their goals using its global advisory, risk management and financing capabilities.”

Asia Pacific M&A activities overview

Source: mergermarket

About The Royal Bank of Scotland Group (RBS)

The Royal Bank of Scotland Group is a major international bank in Asia Pacific with a presence in 15 markets serving corporates and institutional clients. RBS provides a full range of investment and transaction banking capabilities as well as wealth management, retail and commercial banking. The international wealth management arm offers private banking and investment services to clients in selected markets through the RBS Coutts brand.

The RBS Group operates in the following Asia Pacific markets: Australia, China, Hong Kong, India, Indonesia, Japan, Malaysia, Pakistan, Philippines, Singapore, South Korea, Taiwan, Thailand and Vietnam

About mergermarket

mergermarket is an independent Mergers and Acquisitions (M&A) intelligence service, with the largest network of dedicated M&A journalists on the ground in 62 locations across the Americas, Asia-Pacific, Europe, the Middle-East and Africa. This team focuses on gathering actionable proprietary intelligence, creating the only origination database of live targets and bidders.

mergermarket is also an unrivalled source of deal history. Public and private deals across a range of sectors can be searched using an exhaustive database. This proprietary intelligence and historical deals database is available to over 100,000 individual subscribers from more than 1,500 of the world’s principal advisory firms, investment banks, law firms, private equity firms and corporates. mergermarket is part of The Mergermarket Group, which has over 450 employees worldwide and regional headoffices in London, New York and Hong Kong.

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