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feature M&A in China Review of 2010 and the Outlook for 2011 and Beyond


Robert W. Baird & Co. (Baird) is a leading middle-market focused investment bank serving the M&A and equity financing needs of its clients across the US, Europe and Asia. Baird is a well-respected firm with extensive expertise in the field of M&As, having advised on almost 300 M&A transactions in seven years, totalling more than $43 billion. In the past five years alone, approximately one-third of Baird’s M&A activity over the past five years has involved international transactions. The firm has established a significant presence in China with offices in Shanghai, Beijing, and Hong Kong, and using its considerable knowledge and expertise in this area, has compiled a comprehensive review and outlook of the emerging M&A market in China.


According to the report by Baird, deal activity is becoming a vital component of the story of Chinese growth. In its latest China M&A Market report, published


bi-annually, Baird examines emerging trends in the world’s second largest economy. China’s inbound deal count rose 18 per cent in 2010 and the outbound deal count rose by almost 25 per cent, meaning the outlook for cross-border deals in 2011 and beyond is positive, according to Anthony Siu, Managing Director and Head of Asia Investment Banking. Sui said: “Last year, M&A rebounded more quickly


than in other regions. Based on shifts in global capital flows, China should become an increasingly important participant in cross-border M&A over time.” Improving economic conditions provide a solid


foundation for increased deal flow, and globalisation of businesses is acting as a catalyst for cross-border M&A activities. The gap between inbound and outbound M&A narrowed significantly in 2009 and 2010 and inbound dollar volume more than doubled and reached a record level in 2010. Majority-interest M&A deals in China reached record levels in 2010. Active sectors included industrials, showing continued strong growth over most metrics. Computers and electronics, real estate and finance remain most active. Outbound deal value increased by 65 per cent in 2010, spurred by large minority-stake transactions. For outbound deals, mining showed sharp growth.


fi MONTHLY MARCH 2011


This year, it looks likely that Chinese companies will pursue acquisitions that provide access to new markets, valuable resources, technology expertise, and leading brands, according to the Baird report, and overseas acquirers will be attracted to a favourable business environment for investing in China’s excellent growth prospects. Trends over the past few years have indicated that


China’s economy has a direct impact on its M&A activity. The economic success story of China includes superior growth rates and emerging global leadership. A combination of reform, globalisation, and population growth has driven 32 consecutive years of GDP expansion, including a CAGR of 10.1 per cent. China’s busy M&A market is buoyant despite several challenges presented during the transaction period, especially so in oversees deals. Cross-border M&A challenges include the lengthy approval process, complex integration, and relative valuation differences. However, despite these potential obstructions, the Chinese cross-border M&A market has enjoyed many notable successes. Here are some of the highlights: • Following a large decline in 2009, the inbound deal count increased 18 per cent in 2010.


• Inbound dollar volume more than doubled to a record level in 2010.


• Inbound M&A historically has occurred much more frequently than outbound deals, but this disparity narrowed in 2009 and 2010.


•Outbound M&A activity posted a 24.9 per cent


visit www.finance-monthly.com


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