China Outbound M&A in 2011

LoHou Border Crossing

LoHou Border Crossing (Photo credit: Carolinadoug)

I may have been too hard on myself when assessing the accuracy of my predictions for 2011. At the beginning of last year, I predicted that 2011 would be a banner year for cross-border mergers and acquisitions between China and the United States and China and Europe. When reviewing how I did on my 2011 predictions, including the one for cross border M&A between China and the rest of the world, though, I didn’t cut myself much slack when I said:

Unfortunately, 2011 didn’t prove to be the banner year that I predicted. Tight credit markets at home and sluggish markets outside China made everyone cautious. Being completely honest, I can’t say that I earned any points for this prediction. I’ll be right eventually, but not this time around.

According to statistics released by PricewaterhouseCoopers LLP (“PwC”) last Friday, however, that assessment may have been made too hastily. With all of the figures now in, PwC found that Chinese outbound M&A deals reached a record high of $42.9 billion in 2011, an increase of 12 percent year-on-year. A total of 207 outbound M&A deals were signed last year, up 10 percent from 2010.

As might be expected, deals involving raw materials and energy and power accounted for 52 percent of the total volume and the vast majority of the larger deals. In 2011, there were 16 outbound M&A deals valued at more than $1 billion by Chinese buyers, compared with 12 in 2010. Fourteen of those deals were in the resources and energy sectors.

However, industrial and consumer-related deals accounted for a respectable 35 percent of deal volume, indicating that Chinese investors’ appetite for deals is stronger than ever and that cross border M&A is moving into a new phase as a result. Just as I predicted, M&A is emerging as a key enabler of consolidation, growth, market positioning and the acquisition of strategic assets and expertise for Chinese companies.

Overseas acquisitions by Chinese companies may not yet be ready to take center stage in global M&A, but all indications are that they are now starting to happen in a very real way.

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