China posted a quarterly decline of 22% in the number of mergers and acquisitions (M&As) as well as the value of the transactions in the first quarter of this year. The number of M&A transactions fell to 204 while the value of the deals tumbled 25% quarter on quarter to USD16.2 billion. The domestic M&As took up the majority of the deals at 165 cases while 28 transactions were by Chinese companies buying firms overseas and 11 were of foreign companies purchasing Chinese enterprises, said the report by research institute Zero2IPO. “The M&As conducted by Chinese companies overseas showed a strong growth in the first quarter,” the report said. Of the 28 overseas M&As by Chinese companies, the transaction value totaled USD11.6 billion in the first quarter, up 78% from the fourth quarter of last year, Zero2IPO data showed. However, the report said the M&A transaction value by foreign firms in China in the first quarter plunged 76% from the three months before to USD630 million.

Chinese investment firm Hony Capital is teaming up with TPG, the U.S. buyout group, to bid for Elpida Memory, the Japanese chipmaker that filed for bankruptcy protection in February with debts of USD5.6 billion. If successful, the bid would be one of the most high-profile examples of growing Chinese interest in acquiring Japanese technology assets. Hony, one of the largest and well respected Chinese private equity firms, is an offshoot of Legend Holdings. Its latest fund has about USD2.4 billion under management. Other possible bidders set to join a second round of bidding on April 27 are likely to include Hynix Semiconductor of South Korea, along with Taiwanese and Japanese rivals. Micron Technology is also reported to be in the race. The bankruptcy was the largest ever by a Japanese manufacturer. Elpida was the world’s third-biggest D-Ram maker with a 14% global market share, but like others in the industry has had a difficult time competing against Samsung, which has more than half of the market and more advanced technologies that enable it to keep down the costs of making chips, the Financial Times reports.

China Petroleum & Chemical (Sinopec) has played down the chances of raising the offer price of its joint bid with ENN Energy to take over China Gas Holdings. “Our joint bid price has already reflected the fair market value of China Gas,” said Sinopec Chairman Fu Chengyu. “We don’t make acquisitions for the sake of acquisitions, and we can’t offer more than the market price.” ENN Chairman Wang Yusuo said earlier this month it would be “impossible” for the bid price to be raised.

The euro-zone crisis presents cash-rich Chinese companies with prime opportunities to acquire European firms, but dissimilar cost structures and operational hiccups could hinder a smooth transition, industry experts warn. Antonio Alvarez, Managing Director of global professional services firm A&M, which specializes in turnaround and interim management, said Chinese companies tended to underestimate the operational risks following acquisitions. “If Chinese businesses are seen to be acquirers that typically replace the management and the CEO, they won’t be viewed as friendly acquirers, and there will be resistance from CEOs and their teams,” said Alvarez. “It is smart to be a friendly acquirer. If you think you can parachute a Chinese CEO into a company in France, Italy and Greece, you need to be aware of and anticipate problems.” Initiating corporate changes in foreign companies, Alvarez said, would involve confronting alien laws and resistance from the workforce, which could catch Chinese buyers off guard. Cost issues and the creation of a new salary structure have been common problems in China acquisitions. Lack of sensitivity to staff concerns and management coordination can backfire, as seen recently in the protests by Putzmeister employees in Shanghai. Chinese equipment firm Sany Heavy Industry paid more than €500 million to acquire the German pump maker in February, sparking fears of job losses and pay cuts among Putzmeister’s Chinese employees. Protests such as those at Putzmeister are increasingly a risk that Chinese companies have to factor in as they enter a new phase of outbound acquisitions, shifting their focus from natural resources to industrial assets and retail brands in Europe. According to data from Thomson Reuters, the values of Chinese outbound acquisitions have been steadily increasing over the last few years. In 2009, such deals totaled USD39.7 billion, but jumped to USD59 billion last year. So far this year, USD7.6 billion worth of deals have been closed, the South China Morning Post reports.

China drew a record USD16 billion of investment from private equities last year, with retail, industrial goods and hi-tech the most sought-after sectors for investors, according to a new report jointly released by Bain & Company and the European Union Chamber of Commerce. Private equity investment in China, which slumped in 2009 following the financial crisis, rebounded more than 60% year on year to USD13.9 billion in 2010, and grew 15% to USD16.1 billion last year. The figures do not include deals valued less than USD10 million. “We expect PE capital growth to be stable and healthy in China this year,” said Han Weiwen, Partner at Bain & Company. Last year, funds raised by domestic private equities exceeded that by foreign investments for the first time, accounting for around 60% of the total in China. Han said there had been a change in the mix of private equity investment in recent years as investors increasingly shift funds from financial services to retail, hi-tech, industrial goods and health care. The report gleaned information from 131 companies that received private equity investment between 2004 and 2008. It shows that 65% of private equity capital went to companies in inland provinces such as Qinghai, Xinjiang and Sichuan instead of more developed coastal regions. Private equity investors are also showing a stronger interest in smaller cities, with the deal value in third-tier cities more than doubling to USD2.8 billion in 2010 from 2009. The average size of private equity deals between 2008 and 2010 is valued at only USD50 million, around a third of that in Japan and South Korea.