China and UK expected to be very busy with M&A activity

Report predicts both countries will see huge investment in the next two years

China and the United Kingdom are both forecast to be strong markets for merger and acquisition activities during the coming two years, according to a report released on Monday by law company Baker McKenzie and the think tank Oxford Economics.

The report predicts global M&A activities will exceed $3 trillion in 2018.

In the UK, M&A activities, both domestic and inbound, are expected to reach $162 billion in 2018, despite uncertainty surrounding the UK's decision to leave the European Union. If the prediction about the level of the UK's M&A activity for 2018 is correct, it will be 60 percent up on the $101.6 billion forecast for 2017.

China's M&A activities are forecast to reach an aggregated volume of $278 billion in 2018 and $297.1 billion in 2019, considerably more than the 2017 total of $240.2 billion.

Cross-border inbound M&A activities into China show particularly strong growth, with China inbound M&A projected to be $47.9 billion for 2018 and $56 billion for 2019, significantly more than the $28.1 billion spent on cross-border inbound M&A activities into China expected for 2017.

Tim Gee, corporate partner at Baker McKenzie, said the forecast shows dealmaking in the UK is on the rise again after Brexit-related uncertainties.

"The widely predicted fl ight of investment from the UK simply hasn't happened," he said.

Commenting on the China stats, Tracy Wut, Baker McKenzie's M&A partner in Hong Kong, said she believes most China-related domestic and cross-border M&A activities will be in the healthcare, pharmaceutical, and consumer goods sectors, which are increasingly key drivers of China's domestic growth.

Yu Zongwen, CEO of the London-based advisory Shanghai London Connect Limited, said many overseas investors and sovereign wealth funds have been eyeing China investment opportunities in recent years, but market activities are confined by regulatory restrictions.

He said he believes the restrictions were put in place mainly because the Chinese authorities wanted to focus on not opening up the market too quickly, and"to protect foreign investors at a time when many Chinese companies' corporate governance standards were still lagging behind international standards".

He said such restrictions are likely to be eased over time as China's economy becomes more mature.

Monica Lin, UK chairwoman of the wealth management company Hywin Wealth, said China's outbound activities are also growing, with investments flowing, especially into projects related to the China-proposed Belt and Road Initiative.

Meanwhile, Lin said a new trend of "parallel fund" M&A activities has picked up pace, which involves Chinese and overseas funds simultaneously acquiring targets in China and overseas with clear complementarities, and merging them into one entity to realize these synergies, again contributing to inbound UK and China M&A activity.

Globally, key factors driving forward burgeoning M&A activities include positive world trade and economic growth, improving equity valuations, and the prospect of cheaper financing in emerging markets, according to the report.