China M&A deal values fell 18% in H1

Domestic strategic M&A crashed 27% to about US$1b.

China’s merger and acquisition (M&A) deals slipped 18% in H1 despite a slight increase in the volume of transactions, PwC revealed. Deal values fell across four main sub-sectors including domestic strategic buyers and foreign strategic buyers.

Meanwhile, domestic strategic M&A crashed 27% in value with 24 mega-deals valued over US$1b, PwC noted. Despite this, deal volumes were still the second highest on record.

“To some extent, the slowdown reflects the Chinese government’s commitment to deleveraging, which has had some impact,” PwC said.

In addition, the falling investment into the US accounts seems to account for a significant proportion of the overall decline in China outbound M&A.

In the financial buyer's sector, fund-raising by traditional PE sustained robust performance whilst venture capital activity reached a new six-month record in terms of value, PWC noted. The value of investments by PE and financial buyers in outbound M&A declined in line with the overall trend in spite of the rise in the number of overseas transactions.

A significant decrease in exit activity for PEs was also seen in H1 2018 as regulators controlled the numbers of initial public offerings (IPOs) amidst seeking improvement for the quality of applicants and reduce market volatility, PwC said.

“Exits via trade sales also declined, as listed company buyers tightened their belts amid a deleveraging environment,” the firm explained.

The firm thinks that H2 2018 will sustain a moderate decline in M&A as China outbound will continue to slow. Despite this, they believe that domestic strategic buyers, foreign strategic buyers, and PE are likely to retain stability.

“The impact of the China-US trade war may be limited, as deals with the US have already been at low levels for the last 18 months,” PwC China and Hong Kong transaction services leader David Brown commented. “But very large or commercially sensitive deals are likely to come under greater scrutiny in both the US and Europe.”