Volume of M&A deals in and out of mainland China plummets

According to research from Grant Thornton International, mergers and acquisitions (M&A) activity in Mainland China is decreasing at a significant rate. In the first six months of 2007, foreign businesses completed 105 deals worth US$1.9bn. This indicates that there will be a major reduction from the whole of 2006 when 279 deals worth over US$11.5bn were made. This includes consideration of particularly large deals in 2006, such as the US$3.1bn deal between Guangdong Development Bank and an investor group led by City Group Inc.

Acquisitions in Mainland China

The United States is the biggest investor in Mainland China again this year. The most valuable deal made by a US firm was for US$882m with 3com group acquiring Huawei-3com Co Ltd). Hong Kong is also continuing a trend of investment in Mainland China. Its biggest deal involved Panva Gas Holdings Ltd acquiring Hong Kong & China Gas(Qingdao) and was worth $US393.5m.

Mainland Chinese purchases of foreign businesses are also dwindling in terms of deal value. In 2006, 51 deals worth US$13bn were completed, whilst so far this year 38 deals were completed, but only valued at US$1.5bn.

Japan and Pakistan are unique in showing the biggest investment from Mainland Chinese companies in that only one deal has been made in each country. The Japanese deal involved Cension Semiconductor Mfr Corp acquiring Hiroshima Elpida-silicon wafer and the deal in Pakistan involved China Mobile Commun Corp acquiring Paktel Ltd.

Grant Thornton Insight
According to the Grant Thornton International Business Report 2007, Mainland China has been attractive to foreign businesses looking to invest, it has the highest in flows of foreign direct investment of any of the BRIC economies (Brazil, Russia, India, China). Direct investment often has fewer integration issues than a merger or acquisition deal.

Ian Smart, head of international M&A at Grant Thornton corporate finance says "the reduction in M&A in mainland China is interesting which is perhaps as a result of the increased M&A activity in India. Indian businesses over the last 12 months have benefited from the more welcoming business regulations"

Stephen Chipman, chief executive officer of the Grant Thornton China Management Company says: 'The number of M&A deals in Mainland China may be decreasing for a number of reasons. For example in late 2006, the Mainland Chinese government introduced new M&A regulations specifically for foreign investors, which created additional restrictions and approvals for certain types of transactions in certain industries, in particular industries that could impact “national economic security”. Another factor may be that the valuations of targets in Mainland China for foreign investors have been running very high and this may be deterring deals.'

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