China's PE activity hits record highs at $222b in 2018

It offset the 23% decline in China’s outbound M&A activity which dropped for the third consecutive year.

China’s 2018 private equity (PE) investment activity hit a new high at $222b in 2018, offsetting its mergers and acquisitions (M&A) activity which dropped 23% to $678b, according to PwC’s 2018 Review and 2019 Outlook.

The new record is said to reflect the large supply of available capital meeting substantial demand for funding in the private sector, bolstered by several hot tech and fintech mega-deals, PwC said. These sectors were particularly active in the year, and included a $14b funding round by online payment service provider Ant Financial which is said to be the highest financing round ever by a private company globally.

Also read: China's outbound M&A likely to slide further in 2019

PwC noted that the number of PE-backed initial public offerings (IPOs) and trade sales both slid in 2018, with exit activities dropping to the lowest level in the past five years. “The US and Hong Kong stock markets appeared more attractive, however, with both landing more PE-backed IPOs in 2018 than in each of the prior four years,” the firm observed.

PE investments are expected to continue its growth going into 2019, as historically high amounts of capital need to be defrayed amidst the forecasted economic slowdown in the first few months of the year.

PwC said it expects a slower first half in 2019, as outbound activities continue to decline, with a number of uncertainties affecting the market, including pricing expectations.

“If there are favourable developments to current headwinds, we anticipate a fairly strong rebound in the second half, as the fundamental drivers of Chinese outbound M&A remain in play,” PwC deals leader for Asia Pacific David Brown said in a statement. “We do expect to see a recovery in outbound deals and some strong PE activity in the last 6 to 8 months of the year as well as some uptick in foreign inbound transactions, spurred by further opening up in specific sectors such as automotive, financial services and technology.”