How Chinese buyers can manage outbound M&A

The cartoon of M&A.[Photo/IC]

The world is witnessing a surge in the value and volume of China’s outbound M&A deals. Major target markets include the US and Europe, as well as some emerging markets. Amid this wave of deal activity, Chinese corporates need to ensure they are best-positioned to manage the risk and the deal process in outbound M&A.

Diversification continues to be a key theme across a range of areas. This diversification can be in the investment target, with a range of companies across the US and European markets attracting attention. It can also be in the types of risks these deals face, or in the financing vehicles being used by corporates for outbound activity.

China's M&A outbound deals have reached historic highs in value solely in the first quarter of 2016, as PwC reports. A tally of 115 Chinese outbound M&A deals was publicized, with an overall value of US$82.6 billion, eclipsing all previous annual figures. There is also a myriad of other developments in how Chinese corporates are doing deals, including changes in the business purpose and strategy behind acquisitions.

Furthermore, amid greater uncertainty around regulatory approval, buyers need to be increasingly mindful of securing approval from both China regulators and other regulatory bodies in target markets. There have also been extensive changes over the past several years in the process by which Chinese corporates complete a deal.

Another area seeing growth is in the industries being targeted. In the past, Chinese corporates focused their interest on assets related to energy and natural resources. This is now extending to other areas, such as new energy, technology, media and financial services. Specific sectors continue to dominate deal flow, such as TMT (technology, media and telecommunications) and PMB (pharma, medical and biotech).