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Solveigh on Chinese Outbound Mergers & Acquisitions

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Solveigh is specialized in cross border M&A with China. We recently made an analysis on Outbound M&A with China. If you want to discuss or would like to have some more info, please contact us.

Solveigh is specialized in cross border M&A with China. We recently made an analysis on Outbound M&A with China. If you want to discuss or would like to have some more info, please contact us.

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  • 1. China’s  Outbound  M&A An overview Hong Kong, August 23, 2013 – © Solveigh Greater China HK Ltd
  • 2. Independent advisors in strategic Cross-border mergers & acquisitions We do Mergers & Acquisitions. We make it more simple. No matter where you are or where you go, we make it your place. We get you there and make it feel like home
  • 3. Important Notice This document contains a proprietary analysis provided by Solveigh. Although care has been taken to ensure the accuracy, completeness and reliability of the information provided, Solveigh explicitly disclaims any and all liability based, in whole or in part, on the information in this document, errors herein or omissions here from. The user of the information in this document agrees that this information may be subject to changes or updates without further notice. Solveigh assumes no responsibility for the consequences of use of this information. Further distribution, reproduction or use of the information contained herein is only allowed after Solveigh’s explicit and written approval and without any adjustment to its format. Further to this, it is not allowed to load pages in frames or through other formats or other websites without Solveigh’s explicit and written permission. As a condition to such permission if provided such information should in any case link to the website of Solveigh under www.solveigh.com Solveigh Greater China HK Ltd 23 August 2013 China’s Outbound M&A Page 3
  • 4. China Outbound M&A: Summary China’s overseas acquisitions have increased more than five-fold from 2006 to 2012, reaching an aggregate (published) annual investment amount of USD 60.4 billion by 2012. In 2012, the total value of outbound transactions again increased by 21%. Supported by the nation’s “going-out strategy” and either in search of strategic resources, new markets or key technologies, it is expected that many capital-rich Chinese companies will continue their quest for investment opportunities overseas. This overview provides an ‘average’ profile of Chinese Corporates investing and acquiring overseas including the relevance of Hong Kong. Main findings: Most Chinese acquirers are headquartered in Beijing. Shandong and Shanghai follow at significant distance. Companies from various Chinese regions however seem to have different focuses in terms of preferred outbound target industries Mining is by far the largest category for outbound M&A, followed in distance by electronic/electrical equipment and business services Chinese acquirers in the mid-market are mostly private companies, followed by public companies and then SOEs Buyers in electronics, machinery and business services are mostly public companies, hence easier to locate Top destination for China mid-market outbound M&A are Australia and New Zealand, closely followed by Asia, North America and Europe. South America and Africa are for M&A not very relevant to Chinese enterprises For investments into Europe, manufacturing equipment/heavy machinery, food products, transportation and electronic equipment are, next to mining, the most import M&A target industries for Chinese corporate investors The HK outbound M&A market is currently approximately similar in size to the mainland Chinese outbound M&A market. The share of mainland outbound M&A compared to Hong Kong outbound M&A has been rising steadily over recent years Around 10% of Hong Kong outbound deals are completed by subsidiaries of mainland Chinese companies A large proportion of M&A failure cases are related to mining industry. After excluding the mining industry, the difference in withdraw rate between SOEs, private and public firms is not significant Differences of deal duration among SOEs, private and public companies are not very large, but SOEs still have longest average deal duration. There seems no significant relation between deal size and duration 23 August 2013 Page 4 China’s Outbound M&A
  • 5. Mainland Market
  • 6. 23 August 2013 Page 6 Number of deals $mln China’s Outbound M&A HeatMap of Mainland Outbound M&A Deal Volume 2005 to 2012
  • 7. Origin of Chinese Outbound M&A by Region 23 August 2013 Page 7 115 27 23 19 15 14 14 12 10 10 7 6 6 6 6 6 5 5 4 4 3 2 2 2 2 2 1 1 1 1 0 20 40 60 80 100 120 140 Beijing Shanghai Shandong Shenzhen Zhejiang Guangdong Jiangsu Liaoning Gansu Hunan Chongqing Hebei Henan Hubei Sichuan Yunan Shannxi Tianjin Fujian Hainan Jilin Anhui Jiangxi Qinghai Shanxi Xinjiang Guangxi Harbin Heilongjiang Neimenggu China’s Outbound M&A
  • 8. Average Deal Size ($mln) per Region 23 August 2013 Page 8 143.89 138.71 135.35 129.27 96.77 95.95 91.93 81.30 75.34 73.61 67.02 58.97 52.44 50.83 50.82 49.34 45.25 34.92 33.29 32.39 31.00 24.47 20.95 17.99 15.38 12.21 11.49 6.95 3.39 2.29 0 20 40 60 80 100 120 140 160 Hainan Hubei Qinghai Shandong Sichuan Hunan Beijing Shanxi Fujian Gansu Shanghai Guangxi Jiangsu Zhejiang Yunan Guangdong Shenzhen Xinjiang Jilin Chongqing Tianjin Jiangxi Liaoning Shannxi Hebei Harbin Henan Neimenggu Anhui Heilongjiang China’s Outbound M&A
  • 9. China Outbound Investment Industry Distribution 23 August 2013 Page 9 0 1000 2000 3000 4000 5000 6000 7000 8000 9000 10000 Mining Oil and Gas; Petroleum Refining Electronic and Electrical Equipment Transportation Equipment Investment & Commodity Firms,Dealers,Exchanges Telecommunications Wholesale Trade-Nondurable Goods Food and Kindred Products Machinery Real Estate; Mortgage Bankers and Brokers 128 40 20 16 16 16 15 12 10 9 0 20 40 60 80 100 120 140 Mining Electronic and Electrical Equipment Business Services Machinery Oil and Gas; Petroleum Refining Investment & Commodity Firms,Dealers,Exchanges Food and Kindred Products Transportation Equipment Prepackaged Software Wholesale Trade-Nondurable Goods Top 10 Industry Ranking by Total Deal Value (USD $ Million) Top 10 Industry by Number of Cases China’s Outbound M&A
  • 10. Average Deal Size (US$ Million) per Industry 23 August 2013 Page 10 168.10 103.12 91.58 88.39 88.18 74.38 68.26 67.82 51.97 51.84 47.93 41.73 32.90 30.59 23.92 10.10 0 20 40 60 80 100 120 140 160 180 Oil and Gas; Petroleum Refining Chemicals and Allied Products Transportation Equipment Wholesale Trade-Nondurable Goods Transportation and Shipping (except air) Mining Commercial Banks, Bank Holding Companies Investment & Commodity Firms,Dealers,Exchanges Food and Kindred Products Measuring, Medical, Photo Equipment; Clocks Machinery Electronic and Electrical Equipment Business Services Textile and Apparel Products Prepackaged Software Drugs *To avoid bias when taking averages, only industries with at least five completed deals are displayed China’s Outbound M&A
  • 11. China Mainland Outbound M&A Destination by Numbers of Deals 23 August 2013 Page 11 ANZ, 103 Europe, 53 North America, 98 South America, 9 Africa, 8 Asia, 80 China’s Outbound M&A
  • 12. Industry Distribution Re European Targets 23 August 2013 Page 12 8 7 6 6 4 3 2 2 2 2 2 2 2 2 2 5 Machinery Mining Food and Kindred Products Transportation Equipment Electronic and Electrical Equipment Measuring, Medical, Photo Equipment; Clocks Transportation and Shipping (except air) Oil and Gas; Petroleum Refining Metal and Metal Products Hotels and Casinos Telecommunications Investment & Commodity Firms,Dealers,Exchanges Chemicals and Allied Products Business Services Communications Equipment Others Number of Cases to Europe per Industry China’s Outbound M&A
  • 13. Beijing: Industry Distribution by Number of Deals 23 August 2013 Page 13 36% 9% 6% 6% 5% 4% 3% 3% 3% 3% 3% 3% 16% Mining Oil and Gas; Petroleum Refining Food and Kindred Products Commercial Banks, Bank Holding Companies Electronic and Electrical Equipment Prepackaged Software Drugs Transportation Equipment Telecommunications Business Services Construction Firms Investment & Commodity Firms,Dealers,Exchanges other China’s Outbound M&A
  • 14. Regional Industry Distribution by Number of Deals 23 August 2013 Page 14 19% 15% 15% 11% 7% 33% Business Services Prepackaged Software Electronic and Electrical Equipment Mining Machinery other 43% 13% 13% 9% 22% Mining Electronic and Electrical Equipment Textile and Apparel Products Chemicals and Allied Products other 30% 20% 15% 30% 5% Electronic and Electrical Equipment Mining Transportation and Shipping (except air) Others Telecommunications 27% 20% 53% Electronic and Electrical Equipment Transportation Equipment Others Shanghai Shenzhen Shandong Zhejiang China’s Outbound M&A
  • 15. Who are the Buyers? 23 August 2013 Page 15 Govt. 13% Priv. 54% Public 33% Chinese Acquirers’ Parent Company’s Public Status China’s Outbound M&A
  • 16. Acquirers’  Ultimate  Parent  Public  Status  in  Top  5  Industries 23 August 2013 Page 16 Priv. 63% Govt. 23% Public 14% Mining Public 50% Priv. 47% Govt. 3% Electronic and Electrical Equipment Public 50% Priv. 45% Govt. 5% Business Services Priv. 50% Public 31% Govt. 19% Machinery Govt. 19% Priv. 50% Public 31% Oil and Gas; Petroleum Refining China’s Outbound M&A
  • 17. HK Outbound M&A
  • 18. HK Outbound M&A Market Compared to Mainland market, the share of HK outbound M&A deals is decreasing overtime About 8% of the HK outbound deals are done by subsidiaries of Mainland companies. 23 August 2013 Page 18 China’s Outbound M&A
  • 19. Trend of HK Outbound Deals by Numbers from 2005-2012 23 August 2013 Page 19 41 59 91 99 98 134 142 111 109 129 152 135 116 142 123 108 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 2005 2006 2007 2008 2009 2010 2011 2012 Mainland HK China’s Outbound M&A
  • 20. HK Outbound Deals Done by Subsidiaries of Mainland Chinese Companies 23 August 2013 Page 20 2 8 4 8 16 16 16 9 109 129 152 135 116 142 123 108 2005 2006 2007 2008 2009 2010 2011 2012 HK Deals from Mainland All HK deals China’s Outbound M&A
  • 21. Target Industries of HK Outbound Deals Done by Subsidiaries of Mainland Companies 23 August 2013 Page 21 19 13 7 6 5 5 5 4 4 3 0 2 4 6 8 10 12 14 16 18 20 Mining Investment & Commodity Firms,Dealers,Exchanges Transportation and Shipping (except air) Measuring, Medical, Photo Equipment; Clocks Business Services Holding Companies, Except Banks Machinery Wholesale Trade-Durable Goods Real Estate; Mortgage Bankers and Brokers Oil and Gas; Petroleum Refining China’s Outbound M&A
  • 22. Failure Risk and Deal Duration
  • 23. Failure Risk and Deal Duration 23 August 2013 Page 23 A large proportion cases that failed is related to the mining industry. After excluding mining industry, the difference in withdrawal rate between SOE’s, private and public firms is not significant. Capital intensive industries usually take a longer time to finalize a deal. Wholesale industries also take a longer time, probably due to the complication in due diligence in this sector. Wholesale companies usually seek market, while it usually takes longer time to understand a foreign market than to, for example, evaluate a new technology. Differences of deal duration among SOE’s, private and public companies are not very large, but SOE’s still have longest average deal duration. There seems no significant relation between deal size and duration. China’s Outbound M&A
  • 24. Industry Distribution of Withdrawn Cases 23 August 2013 Page 24 40 6 4 4 3 26 Mining Oil and Gas; Petroleum Refining Metal and Metal Products Transportation Equipment Chemicals and Allied Products Other China’s Outbound M&A
  • 25. Proportion of Withdrawn Cases in Each Category 23 August 2013 Page 25 16.67% 8.28% 9.09% 0.00% 2.00% 4.00% 6.00% 8.00% 10.00% 12.00% 14.00% 16.00% 18.00% Govt. Priv. Public China’s Outbound M&A
  • 26. No Significant Difference When Mining Excluded 23 August 2013 Page 26 4.65% 4.63% 5.98% 0.00% 1.00% 2.00% 3.00% 4.00% 5.00% 6.00% 7.00% Govt. Priv. Public China’s Outbound M&A
  • 27. Average Duration Announcement to Completion 23 August 2013 Page 27 281.00 250.50 232.78 193.73 188.00 187.17 184.18 162.50 140.77 137.61 133.60 131.88 124.43 119.45 108.14 96.78 89.79 80.78 67.86 64.92 Drugs Commercial Banks, Bank Holding Companies Chemicals and Allied Products Transportation Equipment Wholesale Trade-Nondurable Goods Wholesale Trade-Durable Goods Food and Kindred Products Electric, Gas, and Water Distribution Mining Electronic and Electrical Equipment Agriculture, Forestry, and Fishing Telecommunications Measuring, Medical, Photo Equipment; Clocks Oil and Gas; Petroleum Refining Textile and Apparel Products Machinery Business Services Prepackaged Software Metal and Metal Products Investment & Commodity Firms,Dealers,Exchanges *Deal duration is calculated as the days between announcement date and completion date **To avoid bias when taking average, only industries with at least five completed deals are displayed China’s Outbound M&A
  • 28. Deal Duration by Acquirer Ultimate Public Status 23 August 2013 Page 28 163.00 129.71 144.71 0 20 40 60 80 100 120 140 160 180 Govt. Priv. Public Duration(days) China’s Outbound M&A
  • 29. No Significant Relation Between Deal Value and Duration 23 August 2013 Page 29 .000 1000.000 2000.000 3000.000 4000.000 5000.000 6000.000 7000.000 8000.000 9000.000 10000.000 0 200 400 600 800 1000 1200 1400 1600 1800 2000 TracnsactionValue$mln Duration China’s Outbound M&A
  • 30. Methodology Data source used: Thomson Reuters SDC database from 2005 to 2012 Excluded: individual buyers, financial buyout deals and deals between HK and mainland China For the mainland market analysis: the sample focuses on mid-market transactions and includes all published 313 successful outbound China deals ranging in deal size from US$1mln to US$500mln If a listed company is stated as state-owned in its company profile (deal “synopsis” in the database), its ownership is marked as government (even though the company might be listed) For the Hong Kong market analysis: the sample includes all the 1060 outbound successful deals from Hong Kong except to Chinese Mainland For the withdraw risk and duration analysis: the sample includes 83 withdraw cases and 420 Chinese mainland deals with valid deal announcement date and effective date 23 August 2013 Page 30 China’s Outbound M&A
  • 31. About Solveigh
  • 32. Introduction Solveigh Greater China Solveigh is a Hong Kong based independent investment banking advisory firm specializing in proprietary cross border corporate Mergers & Acquisitions between Asia and Europe. Besides its office in Hong Kong, Solveigh has offices in China (Beijing) and Europe (Rotterdam, the Netherlands). Solveigh has a blended team of Chinese and European professionals. Solveigh has partners in over 50 countries with whom it has been cooperating and closing deals for over 10 years. Hence, Solveigh has a strong international presence and high level local access in most countries across the globe Solveigh partners are well experienced, well connected and fully committed to their clients on an exclusive basis. The team has a strong track record in terms of Chinese as well as European experience. Solveigh was founded in 1998 in The Netherlands by investment banking professionals that wanted to create a more personalized alternative for demanding corporate clients having a need for committed advisors on cross border M&A who can truly deliver quality solutions and offer unbiased advise. In 2004 the Chinese offices kicked off and today the majority of business is done from Hong Kong as a hub for China and Asia. 23 August 2013 China’s Outbound M&A Page 32
  • 33. Core Services Solveigh Inbound acquisitions, Foreign Direct Investments and Western Sell-side advisory • Full-service Acquisition Management for Western Corporations intending to invest in China • Sell-side support for Western Companies looking for Chinese buyers in a strategic proprietary approach • Transaction structuring • Managing due diligence, relationship affairs, approval processes and legal arrangements • Post-completion support Outbound acquisitions, Overseas Direct Investments and Chinese Sell-side advisory • Full-service Acquisition or Sell-side support for Chinese clients going abroad • Market entry strategies for larger Chinese firms • Transaction origination • Full M&A process support including due diligence coordination, structuring and arrangements, legal matters (contract negotiations, approvals) Strategic development and local support • Market review, market entry review and strategy development for China or abroad • Business development and client representation for its China affairs Other Solveigh services • Equity and Debt structuring, Private Placements, Business Scanning, Due Diligence, Valuation, Technology transfer, Joint Ventures 23 August 2013 China’s Outbound M&A Page 33
  • 34. Contact Details SOLVEIGH| Mergers & Acquisitions Hong Kong office Unit 3604A, 36/F, Tower 2, Lippo Centre 89 Queensway, Hong Kong T +852 3695 5001 F +852 2530 2885 E info@solveigh.com.cn W www.solveigh.com.cn Rotterdam office Westersingel 106, 3015 LD Rotterdam T +31 10 238 18 00 E info@solveigh.com W www.solveigh.nl Solveigh has offices in Rotterdam, Hong Kong, Brussels and Beijing and is a partner firm in Global M&A W www.globalma.com 23 August 2013 Page 34 Mr. Ernst Jan Kruis CEO & Founder ejkruis@solveigh.com +852 9310 7137 Mr. Jona Kan Director & Legal Counsel jkan@solveigh.com +852 9131 6079 China’s Outbound M&A