Investors' M&A appetite lackluster

Chinese investor sentiment toward mergers and acquisitions has cooled further amid concerns of slowing economic growth, according to an Ernst & Young survey released on Tuesday.

With corporate finances and funding conditions improving and valuations declining somewhat over the past few months, the deal-making climate has become increasingly favorable. However, Chinese investors' appetite for M&As is lackluster as they become less optimistic about the domestic economy.

In fact, Chinese executives expressed reduced interest in engaging in M&A activities in the coming months, according to the survey, in which 1,500 executives across the globe were interviewed in April.

Only 22 percent of Chinese respondents to the survey expect to pursue M&As over the next 12 months, down from 35 percent last October. The survey's global figure was 35 percent.

Half of the Chinese executives are pessimistic about the number of deals available, up sharply from just 16 percent six months ago and significantly higher than the 15 percent of global respondents who hold this view.

Meanwhile, the percentage of Chinese respondents who are positive about the likelihood of closing deals dipped to 8 percent from 21 percent last October.

Above all, "Chinese executives are less optimistic than their global peers about their local economy", said Bernard Poon, Ernst & Young's transaction advisory services leader for Hong Kong and Macao.

At 8.1 percent, China's economic growth in the first quarter of this year was the slowest in nearly three years, stoking concerns that the economic slowdown has yet to bottom out, while sluggish export demand and higher inflation provided little relief.

Unlike their global peers, who were more upbeat about their local economic prospects than six months ago, Chinese survey respondents were less bullish. Only 18 percent saw improvement in the domestic economy, down from 27 percent six months ago.

The cautious stance is also reflected in companies' growth strategies.

In contrast to their global counterparts who have placed increased emphasis on growth, more than half of them said growth will be their top priority in the next year, only 35 percent of Chinese executives said they will concentrate on growth over the next 12 months. A total of 64 percent of Chinese companies see maintaining stability as the most important strategy.

Apart from growth concerns, Chinese investors are likewise discouraged by the valuation gap, which 78 percent of respondents cited as the main reason for not pursuing a deal over the next 12 months.

"While slower rates of growth at home are having an impact on Chinese companies' capital agenda, continuing concerns about high valuations are also helping to cool their appetites for M&A," said Robert Partridge, Ernst & Young's transaction advisory services leader for China.

Of the Chinese executives surveyed, 63 percent expect prices to drop over the next year, and just 15 percent expect growth.

emmaan@chinadailyhk.com