The number of mergers and acquisitions (M&As) in China and Hong Kong rose nearly 20% to a record high last year despite headwinds from a slowing economy and sporadic Covid-19 outbreaks, according to Mergermarket. A total of 2,381 deals were concluded in 2021, the most since records began in 2006. The value rose 13% to USD545.2 billion, the second-highest ever. The increase in deal making was attributed to the consolidation of infrastructure, and technology, media and telecommunications firms, as well as a record-breaking upswing in private equity buyouts and the government’s domestic policies.
China’s latest five-year plan for “common prosperity” has put growth at home under the spotlight. It is focused on boosting domestic consumption, strengthening internal supply chains while reducing dependency on foreign ones, and enhancing regulation in a variety of industries including financial services and education. “Despite market turbulence and regulatory risks, the Chinese domestic market is booming,” said John Yuan, Country Manager China and Southeast Asia for virtual data room iDeals in the report. “Many multinational companies are developing a China-to-China strategy and acquiring Chinese targets to reshape supply chains and make them more local,” he added.
Most of the M&A activity was concentrated in mainland China, where 2,179 deals worth USD503.5 billion were concluded last year. The largest deal was the USD111.5 billion merger between Sichuan Railway Investment Group and Sichuan Transportation Investment Group. This was also the top deal globally last year. “Sub-sectors of larger industries such as semiconductors, renewable energy and electrical vehicles are ripe for investment,” said Yuan. “Given that technological innovation, renewables and the digital economy are priorities for the government, acquirers and investors should be focusing on hi-tech manufacturing and emissions reduction projects.”
Meanwhile, China’s outbound direct investment (ODI) has fallen steadily in the last five years because of greater difficulties to export capital as well as a more complicated regulatory environment abroad, according to a report on Chinese outbound investment released by Baker McKenzie and the Rhodium Group. Completed global outbound M&A deals by Chinese companies slumped almost 83% to USD23.7 billion in 2021, from USD138.9 billion in 2017.
