Strong growth in China's merger and acquisition (M&A) market this year will continue into 2007 in the wake of sustained economic growth and the further opening of the domestic economy across a broader range of sectors, a report from PricewaterhouseCoopers (PwC) said yesterday.

 

Foreign corporate investor activity will remain high and the investor base will broaden further to include a higher proportion of domestic, outbound, private equity and venture capital deals, the report said.

 

"I estimate that M&As could exceed US$54 billion in 2007 if nothing unforeseen happens," said Xie Tao, a Beijing-based partner at PwC Transaction Services. "Domestic deals are likely to continue to grow, driven by accelerating industry consolidation."

 

M&As can help companies restructure to improve flagging operations, meanwhile increasing industry concentration and boosting efficiency.

 

"With the economy continuing to enjoy strong growth next year, we see no reason why activity cannot continue to increase in 2007," Xie said.

 

According to data supplied by M&A Asia, the number of announced deals in the first 11 months of 2006 in China (including Hong Kong and Macao) climbed 30 percent compared with 950 in the whole of 2005. The increase was driven by domestic strategic deals (up 42 percent), private equity deals (up 75 percent) and venture capital deals (up 28 percent).

 

The total disclosed deal value in the 11 months to November 2006 was US$48.7 billion, compared to US$54 billion in the whole of 2005, when a handful of large one-off pre-IPO investments in the banking sector added some US$12 billion to that year's tally.

 

PwC's report shows that the total number of disclosed transactions in which both the seller and acquirer were domestic Chinese companies increased 67 percent to 313 in 2006 from 187 in 2005.

 

The main sectors contributing to the increase were financial services, manufacturing and retail. The largest announced domestic deal in 2006 was Gome's 61 percent acquisition of China Paradise, its competitor in home appliance retailing, for US$677 million.

 

The Ministry of Commerce released new regulations on foreign M&As this August. But analyst Xie said the rules will not stifle dealmakers.

 

"Although large foreign buyouts are likely to face temporary delays in the approval process until the interpretation of new government policies and regulations is clarified, the implementation of the new policies and regulations will increase transparency and encourage further activity," Xie said.

 

Outbound investments announced in the 11 months also increased 61 percent to US$14.1 billion, driven by large energy and resources deals.

 

"Outbound investment is likely to remain resource-focused, but strong policy support is likely to be tempered by an increasing realization of the risks that Chinese companies take on in outbound investment," said David Brown, a Hong Kong-based partner at PwC Transaction Services.

 

(China Daily December 19, 2006)