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CAGR since 2004, including 23.5 per cent growth in 2010.
•Outbound deal value increased 65 per cent in 2010, driven by large minority-stake transactions. Strong Economic Growth
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companies targeting successful domestic businesses, China represents a fertile end-market that capitalises on the growing middle class. Overseas acquirers view the consumer sector as attractive, given its long-term prospects.” Recent deals include the acquisition of the Chinese retail operations of Kwok Hang Holdings by UK-based luxury goods company, Burberry Group, in July 2010. IPO Resurgence.
In 2009, the IPO market re-opened after the China Securities Regulatory Commission (CSRC) ceased its IPO application reviews in 2008. Due to considerable equity value increases at the beginning of 2009, the IPO market was re-opened and levels enjoyed a healthy rise. The Baird report states: “As a means of allowing
more small and mid-sized companies to access the public markets, the Growth Enterprise Market was launched by the Shenzhen Stock Exchange in November 2009. The launch included 28 IPOs that raised about $2 billion for newly listed companies. The total number of IPOs on the exchange (also known as ChiNext) reached 117 during 2010, with total capital raised exceeding $14 billion, thereby showing capital-raising potential for a substantial number of smaller entities. The launch of ChiNext enhanced the appeal of pre-IPO investments due to the improved outlook for exit opportunities. In addition, proceeds from stock offerings supply issuers with capital for potential M&A transactions.”
Baird reports that China’s potential for growth is considerable, and is proving to be a powerful magnet for overseas acquirers. The report states that “Foreign buyers, in some cases responding to pressure from corporate boards, have targeted Chinese companies as a means of participating in an economy with a recent history of double-digit GDP expansion and prospects for superior growth over an extended period. The appeal of entering China via acquisition contributed to inbound activity more than tripling over a five-year period through 2008 before declining amid the global downturn in 2009. Healthy growth resumed for the inbound deal count in 2010, when announced inbound dollar volume reached a record level.” Baird’s report claims that firms from outside of
China are drawn to high-growth Chinese companies by the advantages associated with such a partnership or investment, serving the domestic consumption market. The report states: “Investments in fixed assets and
exports to trading partners, which represent the majority of economic activity in China, feed the buying power of individuals and businesses that purchase and use products on a domestic basis. The recent stimulus program increased local demand for infrastructure, construction, and clean energy products. Some inbound buyers are shifting to onshore production to address the local market, acquiring lower-tier suppliers (whose standards are sufficient for domestic products) in smaller deals. For
fi MONTHLY MARCH 2011 Outlook
According to the Baird report, the outlook for China is positive. M&A rebounded more quickly than in other regions, following a slight decline in 2009. 2012 is expected to witness a sustained period of global economic growth, and should this materialise as projected, it would support China’s economy and M&A market enormously. Drivers of long-term GDP growth are expected to include export growth, investments in domestic assets, and increased personal consumption. The government will play its part in the country’s recovery and will implement policies in order to reach its growth targets and based on shifts in global capital flows, China should become an increasingly important participant in cross-border M&A over time – excellent news for the Chinese business world and foreign investors alike! fi
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