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China likely to see rise in mergers in 2006

(AP)
Updated: 2006-03-21 16:46

China will likely see an increase in mergers and acquisitions deals this year, helped by relaxed regulations that will lure private equity transactions, a research report by the consultant group PricewaterhouseCoopers says.

The number of merger and acquisition deals last year rose to 857, up 14.5 percent from 749 in 2004, the report said.

Overall, merger and acquisition volumes totaled US$46.4 billion in 2005, up 34 percent from 2004 as China's top four state-owned banks and some commercial banks sought strategic investors ahead of Hong Kong stock exchange listings.

But aside from the financial sector, China's merger and acquisition activity showed little growth in terms of deal value, the company said.

"In the absence of a comparable number of financial services deals, we expect gross deal values to be lower in 2006," PricewaterhouseCoopers said in a statement.

Private equity and venture capital transactions in China slowed down after China's State Administration of Foreign Exchange issued regulations in early 2005 requiring private equity firms to get approval from the central government for any investment in offshore companies.

The change left many deals waiting in the pipeline, said David Brown, transactions partner at PricewaterhouseCoopers. But investor confidence has improved since Beijing eased control on the regulations late last year in response to market concerns, he said.

Companies are now required to register any deal with the State Administration of Foreign Exchange instead of obtaining its approval, Brown said.

The swift regulatory response, an increase in private equity deals and a continued surge in overseas investment by Chinese companies "bode well for future merger and acquisition activity," he said.

Brown said sectors such as information technology and electronics, manufacturing, retail and transportation are likely to record significant merger and acquisition activity in 2006.

He also forecast that overseas investment by mainland Chinese companies could double this year as state-owned enterprises continue to seek partnerships with overseas energy firms and private companies seek access to technology and brands.

Outbound investment from China totaled US$6.9 billion in 2005, including China National Petroleum Corp.'s US$4.2 billion acquisition of Canadian-owned PetroKazakhstan Inc. in August, the biggest cross-border deal of the year.