More European firms seeking M&As in China
June 25, 2019 Category China News Round-up, Weekly
Interest from European companies in acquiring Chinese assets, including state-owned enterprises, intensified last year, while the U.S.-China trade war made American firms cautious and also curtailed outbound investments by Chinese companies, according to investment bankers. “As China continues to seek to attract foreign investment in larger SOEs which are undergoing reforms to make them more competitive, that creates many opportunities for foreign investors,” said Samson Lo, head of mergers & acquisitions, Asia at UBS. As European firms seek more opportunities in China, China’s outbound investment has declined. China’s outbound investments stood at USD200 billion in 2016 but fell to USD70 billion in 2018 and are likely to fall further this year. However, the decline in M&A activity will be offset by inbound investment, as well as by transactions arising from the establishment of joint venture deals and the restructuring of SOEs in China.
There were 49 deals in China involving European companies last year, up from 32% in 2017. Their value jumped 856% to USD9.94 billion from USD1.04 billion in 2017, according to Dealogic. One of the biggest deals last year was Dutch brewer Heineken’s acquisition of a 40% stake in state-owned CRH Beer for USD3.1 billion. SOEs willing to sell a majority stake are of particular interest to international buyers not only because of the bridgehead they offer into China but also because of the good relationships that the SOEs typically have with the Chinese government. Raghu Narain, head of investment banking at Natixis Asia-Pacific, said that for European firms it is “all about trying to get growth” which is what China offers.
According to UBS’ Lo, the sectors where the Chinese government has relaxed restrictions such as insurance, asset management, banking and automobiles are attracting the most foreign investments, while consumer and health care continue to remain popular, the South China Morning Post reports.
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