M&A deals will maintain strong momentum
Updated: 2008-02-21 09:00
Private equity deals
Industry analysts said private equity, another main driver of M&A activities, will continue to push deals.
The first 11 months of 2007 saw 140 announced transactions by private equity firms, compared with 110 in 2006, PwC said.
Overall deal values rose from $5.7 billion to $10.6 billion on the back of a number of multimillion dollar transactions including Permira's $840 million acquisition of a 20 percent stake in Galaxy Entertainment's Macao casino development and Blackstone's $600 million acquisition of a 20 percent stake in China National Bluestar. Despite the increases, private equity remains less than 15 percent of the total deals.
"Private equity is as interested in China as it has ever been. The biggest deals in 2007 have been pulled off by PE houses who are relatively new to the region, and we continue to see new funds arriving," said David Brown of Hong Kong-based PwC Transactions.
The US subprime-induced credit crunch barely produced a pause in private equity activity in China. As Brown explained: "Private equity deals in China, as compared with more developed markets in the US and Europe, tend to be smaller and less aggressively geared, and local banks, including Chinese banks, are happy to step up to provide financing. Looking at the impact of the credit crunch going into 2008, if anything, we predict an increase in private equity activity as US PE funds direct money and human resources toward Asia in response to less activity in their home geographies."
As PwC has previously predicted, private equity investors have focused on taking minority stakes, and this trend is expected to continue in the near future.
Outbound investment
In the past two years, China has seen more outbound investment and is starting to see higher-value transactions.
The value of outbound transactions more than doubled in 2007 to $16.4 billion, although acquisitions from the mainland were all minority stakes. They included ICBC's $5.4 billion investment in Standard Bank, China Development Bank's $3 billion investment in Barclays and China Investment Corp's $3 billion investment in Blackstone.
"Generally speaking, it's difficult to speculate whether Chinese companies have the confidence or the need to take controlling stakes in their overseas competitors. We anticipate the outbound scene will be choppy over the next 12 months, but we can expect to see one or two very big deals, and we stand by our earlier five-year forecast that the level of outbound activity will grow to 10 times the 2006 levels by 2011," Brown said.
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