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M&A 2017 Mid Year Review and Outlook Press Briefing
24 August 2017
www.pwchk.com
PwC
Foreword – explanation of data shown in this presentation (1 of 2)
2
• The data presented is based on information compiled by ThomsonReuters, ChinaVenture, AVCJ, public news and PwC analysis unless stated otherwise
• Thomson Reuters and ChinaVenture record announced deals. Some announced deals will not go on to complete
• The deal volume figures presented in this report refer to the number of deals announced, whether or not a value is disclosed for the deal
• The deal value figures presented in this report refer only to those deals where a value has been disclosed (referred to in this presentation as “disclosed value”)
• “Domestic” means China including Hong Kong and Macau
• “Outbound” relates to mainland China company acquisitions abroad
• “Inbound” relates to overseas company acquisitions of Domestic companies
• “Private Equity deals” or “PE deals” refer to financial buyer deals with deal value over US$10mn and/or with undisclosed deal value, mainly invested by private equity GPs but also including direct investments by financial institutions and conglomerates which are of the nature of private equity type investing
PwC
Foreword – explanation of data shown in this presentation (2 of 2)
3
• “VC deals” refer to financial buyer deals with deal value less than US$10mn and/or with undisclosed deal value, but invested by venture capital funds
• “Strategic buyer” refers to corporate buyers (as opposed to financial buyers) that acquire companies with the objective of integrating the acquisition in their existing business
• “Financial buyer” refers to investors that acquire companies with the objective of realising a return on their investment by selling the business at a profit at a future date and mainly, but not entirely, comprises PE and VC funds
• In order to exclude foreign exchange impact, deal values from 2014 to 2016 were adjusted based on 1H2017 average Rmb/US$ exchange rate
PwC
Overview
4
PwC 5
Source: ThomsonReuters, ChinaVenture and PwC analysis
Total deal volume and value, from 1H14 to 1H17
China M&A fell by 20% in the first six months of 2017 to US$283 billion. But outbound activity, though down 13% in value terms, increased 8% by number of deals
** The value of total China mainland outbound would be 33% down compared to 2H16, if Chinese national sovereign fund deals are taken out.
*
*
Volume Value Volume Value Volume Value Volume Value Volume Value Volume Value Volume Value
Strategic buyers (US$bn) (US$bn) (US$bn) (US$bn) (US$bn) (US$bn) (US$bn)
Domestic 1,636 88.8 2,544 129.1 2,549 199.0 2,272 208.7 2,449 165.5 2,421 156.3 2,112 133.1 (13%) (15%)
Foreign 151 11.6 203 9.8 186 10.4 130 2.7 139 4.1 132 2.7 172 6.2 30% 130%
Total Strategic buyers 1,787 100.4 2,747 138.9 2,735 209.4 2,402 211.4 2,588 169.6 2,553 159.0 2,284 139.3 (11%) (12%)
Financial buyers
Private Equity 213 31.5 380 33.9 423 55.9 639 117.7 649 94.1 1,118 121.2 708 92.3 (37%) (24%)
VC 446 0.4 888 0.8 1,134 1.2 1,601 2.8 1,599 2.3 1,893 3.4 1,520 1.9 (20%) (43%)
Total Financial buyers 659 31.9 1,268 34.7 1,557 57.1 2,240 120.6 2,248 96.4 3,011 124.6 2,228 94.2 (26%) (24%)
China mainland Outbound
SOE 32 14.2 46 10.8 43 14.0 36 9.2 62 48.8 54 15.4 66 14.0 22% (9%)
POE 75 9.9 70 3.2 105 8.8 102 11.6 316 60.1 293 44.1 295 26.6 1% (40%)
Financial buyers 16 7.0 33 5.7 29 6.0 65 6.6 95 22.0 100 14.8 121 23.8 21% 61%
Total China mainland Outbound 123 31.1 149 19.8 177 28.7 203 27.3 473 130.9 447 74.3 482 64.4 8% (13%)
HK Outbound 101 8.3 114 11.7 103 20.6 96 3.5 151 10.7 131 12.1 137 8.8 5% -27%
Total 2,654 164.8 4,245 199.4 4,543 309.8 4,876 356.2 5,365 385.6 6,042 355.2 5,010 282.9 -17% -20%
1H172H141H14
% Diff
vol.
1H2017
vs.
2H2016
% Diff
val.
1H2017
vs.
2H2016
1H15 2H15 1H16 2H16
* Financial buyers backed China mainland outbound deals are also included in private equity deals, but they are not double counted in the total deal volume
and deal value in the table above
**
PwC
Deal values fell across the three main sub-sectors (strategic, financial and outbound) with fewer mega-deals….
88.8 129.1
199.0 208.7 165.5 156.3
133.1
11.6
9.8
10.4 2.7
4.1 2.7 6.2
31.5
33.9
55.9
117.7
94.1 121.2
92.3
31.1
19.8
28.7
27.3 130.9
74.3
64.4
0
50
100
150
200
250
300
350
400
450
1H14 2H14 1H15 2H15 1H16 2H16 1H17
Domestic Strategic Buyers Foreign Strategic Buyers Private Equity Deals China Mainland Outbound
US$ billion
6
Source: ThomsonReuters, ChinaVenture and PwC analysis
* US$23.8bn of financial buyer backed China mainland outbound deals are also recorded in private equity deals
Deal value by main category (excludes VC)
*
*
*
PwC
Deal volume by main category (excludes VC)
1,636
2,544 2,549 2,272 2,449 2,421
2,112
151
203 186
130139 132
172
213
380 423639
6491,118
708
123
149 177203
473
447
482
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
5,000
1H14 2H14 1H15 2H15 1H16 2H16 1H17
Domestic Strategic Buyers Foreign Strategic Buyers Private Equity Deals China Mainland Outbound
Deal volumes also fell in strategic and financial sectors, but –despite reported curbs – outbound deal volumes increased by 8% to a new half-year record of 482 transactions
7
Source: ThomsonReuters, ChinaVenture and PwC analysis
No.
* 121 financial buyer-led China mainland outbound deals are also recorded in private equity deals
*
*
*
PwC
Strategic buyers
8
PwC
Strategic buyer deals – Domestic & Foreign
Domestic strategic M&A declined by around 15% to touch three-year lows, with only 10 mega-deals valued at more than $1 billion (compared to 15 in the prior six months); foreign inbound investment – though much smaller by comparison – was at its highest level in two years, with some larger deals and a step-up in investment from Japan
9
Source: ThomsonReuters, ChinaVenture and PwC analysis
151 203 186 130 139 132 172
1,636
2,544 2,549
2,272 2,449 2,421
2,112
11.6 9.8 10.4 2.7 4.1 2.7 6.2
88.8
129.1
199.0 208.7
165.5 156.3
133.1
0
50
100
150
200
250
0
500
1,000
1,500
2,000
2,500
3,000
1H14 2H14 1H15 2H15 1H16 2H16 1H17
Announced Deal Volume Inbound Announced Deal Volume Domestic
Announced Deal Value Inbound Announced Deal Value Domestic
No. US$ billion
PwC
Real estate M&A hit a three year high and remains active, mainly because of two mega deals ($18 billion in aggregate) involving China Vanke; Technology deals also increased in comparison to the last six months but only to return to levels last seen in 2014
10
Source: ThomsonReuters, ChinaVenture and PwC analysis
24.9 14.8 24.1 14.3 20.8 30.9 39.79.3 17.8
24.628.5 27.3
28.4 19.014.3 19.0
36.734.2 27.4 17.1 19.0
12.519.2
33.231.9
15.527.6 14.8
7.08.6
18.4 29.0
10.07.8
10.2
10.015.8
18.9 21.3
26.1 16.310.2
5.6
11.1
12.8 15.3
12.5 12.0
9.5
8.1
10.4
9.7 9.5
6.9 4.8
6.6
8.9
22.2
30.8 27.3
23.2 14.1
10.4
0
50
100
150
200
250
1H14 2H14 1H15 2H15 1H16 2H16 1H17
Real Estate Industrials High Technology Financials Energy and Power Materials Consumer Media and Entertainment Others
US$ billion
Strategic buyer deal value by industry sector
PwC
PE/VC and financial buyer deals
11
PwC
PE deals overview
PE and financial buyer activity declined by around a quarter compared to the significant peak seen in the last half of 2016, but activity remained robust overall, with both domestic and foreign PEs active
12
Source: ThomsonReuters, ChinaVenture and PwC analysis
213
380 423
639 649
1,118
708
31.5 33.9
55.9
117.7
94.1
121.2
92.3
-10
10
30
50
70
90
110
130
0
200
400
600
800
1,000
1,200
1H14 2H14 1H15 2H15 1H16 2H16 1H17
Announced Deal Volume Announced Deal Value
No. US$ billion
PwC
PE deals by target location
The involvement of PE and financial buyers in outbound M&A is now a well established sub-sector of the market, accounting for nearly 25% of PE activity by value in the first half
13
Source: ThomsonReuters, ChinaVenture and PwC analysis
197
347
394
574 554
1,018
587
16 33 29 65
95 100 121
24.5 28.2
49.9
111.2
72.1
106.4
68.5
7.0 5.7 6.0 6.6
22.0 14.8
23.8
0
20
40
60
80
100
120
140
0
200
400
600
800
1,000
1,200
1H14 2H14 1H15 2H15 1H16 2H16 1H17
Domestic&Inbound Volume Outbound Volume Domestic&Inbound Value Outbound Value
No. US$ billion
PwC
5.0 7.2
28.139.9
24.416.7
26.15.9 2.8
2.5
13.0
11.118.5
18.0
4.3 4.3
7.0
11.1
13.526.6 14.1
3.4
2.4
20.0
10.6
8.7 10.8
6.8
3.8
12.5
8.4
9.5 6.9
3.9
4.5
5.6
5.25.9
6.8
2.8
10.83.7
5.8 8.2
1.4
5.0
7.7
3.0
4.4
6.0
8.4
12.7
17.4
3.6
0
20
40
60
80
100
120
140
1H14 2H14 1H15 2H15 1H16 2H16 1H17
High Technology Real Estate Industrials Financials Consumer Healthcare Materials Retail Others
US$ billion
PE deal value by industry sector
Technology and real-estate related investment activity remain most important for financial buyers, accounting for nearly 50% by value
14
Source: ThomsonReuters, ChinaVenture and PwC analysis
PwC 15
And venture capital activity – though declining off its 2016 peak –remains robust
446
888 1,134
1,601 1,599 1,893
1,520 0.4
0.8
1.2
2.8
2.3
3.4
1.9
-
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
0
500
1,000
1,500
2,000
2,500
3,000
1H14 2H14 1H15 2H15 1H16 2H16 1H17
Announced Deal Volume Announced Deal Value
No.
Source: ThomsonReuters, ChinaVenture and PwC analysis
US$ billion
Venture Capital Deals
PwC
PE/VC backed deal exit volume by type
There was a significant upturn in exit-activity as financial sponsors took advantage of high valuations and strengthening equity markets, especially within China
16
Source: AVCJ and PwC analysis
59 55
89
30 34
131 161 34 47
30
3447
37
50
3233
29
76
6
8
0
50
100
150
200
250
1H14 2H14 1H15 2H15 1H16 2H16 1H17
IPO Trade sale other
PwC
PE/VC backed IPO exit volume by bourse
IPO on the mainland A-share markets was the preferred exit route, as high numbers of new IPOs were approved in the first half of 2017
17
Source: CV Source and PwC analysis
No.
16 22
40
20 17
65 76
30 15
35
2 12
48
78
4 13
11
8 3
14
4
8 5
1
-
4
1
0
30
60
90
120
150
180
1H14 2H14 1H15 2H15 1H16 2H16 1H17
Shenzhen Shanghai A Hong Kong NYSE/ NASDAQ Others
PwC
Mainland China outbound M&A
18
PwC
China mainland outbound deals
Under much-publicised curbs, outbound M&A fell 13% in value terms (and would be around 30% down if Chinese national sovereign fund deals are excluded); the value decrease was a result of fewer mega-deals (15 in 1H17 vs 23 in 2H16) with several of the usually more active players steering clear of high profile deals
19
Source: ThomsonReuters, ChinaVenture, and PwC analysis
123 149 177 203
473 447 482
31.1
19.8
28.7 27.3
130.9
74.3
64.4
0
20
40
60
80
100
120
140
0
100
200
300
400
500
600
1H14 2H14 1H15 2H15 1H16 2H16 1H17
Announced Deal Volume Announce Deal Value
No. US$ billion
*
*
* Includes/excludes ChemChina’s acquisition of Syngenta at US$43 billion.
87.9
PwC
But outbound deal volumes were maintained or increased across each of the three main sub-sectors (SOE, POE and financial) as deals with clear strategic rationale continued to win support
20
Source: ThomsonReuters, ChinaVenture, AVCJ and PwC analysis
32 46 43 36 62 54 66
75 70 105 102
316 293 295
16 33
29 65
95 100
121
-60.0
-40.0
-20.0
0.0
20.0
40.0
60.0
-
100
200
300
400
500
600
1H14 2H14 1H15 2H15 1H16 2H16 1H17
SOE Announced Deal Volume POE Announced Deal Volume Financial buyer Announced Deal VolumeSOE Announced Deal Value POE Announced Deal Value Financial buyer Announced Deal Value
No. US$ billion
China mainland outbound deals by investor type
PwC
China mainland outbound deals by industry sector - volume
Investment in technologies which can be repatriated into China are a good example of supported deals, and this was the largest single category (by number) of outbound deals by industry type
21
Source: ThomsonReuters, ChinaVenture, and PwC analysis
No.
216
7 6 1 3 316
41
59
2839
4025 30
31
40
10
9
5 9
16 3
8
3 17
7 5 2 -13 19
46
65
32 29 33
26 15
49
60
12
12 14 10
5 2
6
0
20
40
60
80
100
120
High Technology Industrials Financials Consumer Healthcare Media and Entertainment Materials Others
2H16 SOE 2H16 POE 2H16 Financial buyers
1H17 SOE 1H17 POE 1H17 Financial buyers
PwC 22
Financial buyer outbound activity reached new records in both value and volume terms – PEs with access to foreign funding were active
1633 29
65
95 100
121
7.0 5.7 6.0 6.6
22.0
14.8
23.8
0
20
40
60
80
100
120
140
1H14 2H14 1H15 2H15 1H16 2H16 1H17
-
5.0
10.0
15.0
20.0
25.0
Announced deal volume Announced deal size
Source: ThomsonReuters, ChinaVenture and PwC analysis
Financial buyer backed China mainland outbound deals
PwC
Outbound M&A deal volume by region of destination 1H17 vs. 2H16
Despite suggestions that Chinese investors would avoid the US as an investment destination, there was in fact an increase in deals into the US; Asia also saw a sharp increase, partly influenced by Belt & Road related investments
23
Source: ThomsonReuters and PwC analysis
133
United States
130148
South America
Europe
Africa
Asia
Oceania
14 23
7
95
7
146108
11 43
2H16
827
Russia
1H17
Other North America
1910
PwC
Key messages
24
PwC
Key messages – China M&A in first half of 2017 (1 of 3)
25
Overall
• China M&A fell by 20% in the first six months of 2017 to US$283 billion, but outbound activity, though down 13% in value terms, increased 8% by number of deals
• Deal values fell across the three main sub-sectors (strategic, financial and outbound) with fewer mega-deals
• Deal volumes also fell in strategic and financial sectors, but – despite reported curbs –outbound deal volumes increased by 8% to a new half-year record of 482 transactions
Domestic and Foreign-Inbound Strategic
• Domestic strategic M&A declined by around 15% to touch three-year lows, with only 10 mega-deals valued at more than $1 billion (compared to 15 in the prior six months); foreign inbound investment – though much smaller by comparison – was at its highest level in two years, with some larger sized deals and a step-up in investment from Japan
• Real estate M&A hit a three year high and remains active, mainly because of two mega deals ($18 billion in aggregate) involving China Vanke; Technology deals also increased in comparison to the last six months but only to return to levels last seen in 2014
PwC
Key messages – China M&A in first half of 2017 (2 of 3)
26
PE/VC and financial buyer deals
• PE and financial buyer activity declined by around a quarter compared to the significant peak seen in the last half of 2016, but activity remained robust overall, with both domestic and foreign PEs active
• The involvement of PE and financial buyers in outbound M&A is now a well established sub-sector of the market, accounting for nearly 25% of PE activity by value in the first half
• Technology and real-estate related investment activity remain most important for financial buyers, accounting for nearly 50% by value
• Venture capital activity – though declining off its 2016 peak – remains robust
• There was a significant upturn in exit activity as financial sponsors took advantage of high valuations and strengthening equity markets, especially within China
• IPO on the mainland A-share markets was the preferred exit route as high numbers of new IPOs were approved in the first half of 2017
PwC
Key messages – China M&A in first half of 2017 (3 of 3)
27
Mainland China Outbound
• Under much-publicized curbs, outbound M&A fell 13% in value terms (and would be around 30% down if Chinese national sovereign fund deals are excluded); the value decrease was a result of fewer mega-deals (15 in 1H17 vs 23 in 2H16) with several of the usually more active players steering clear of high profile deals
• But outbound deal volumes were maintained or increased across each of the three main sub-sectors (SOE, POE and financial) as deals with clear strategic rationale continued to win support
• Investment in technologies which can be repatriated into China are a good example of supported deals, and this was the largest single category (by number) of outbound deal by industry type
• Financial buyer outbound activity reached new records in both value and volume terms – PEs with access to foreign funding were active
• Despite suggestions that Chinese investors would avoid the US as an investment destination, there was in fact an increase in deals into the US; Asia also saw a sharp increase, partly influenced by Belt & Road related investments
PwC
Outlook
28
PwC
Outlook – the next six to twelve months (1 of 4)
Overall
• Overall we expect China M&A to slow slightly in the second half of the year
• The 19th National Congress in October 2017 may result in some “wait and see” effect, and further clarification of outbound restrictions in certain sectors will have some incremental effect
• Nevertheless, overall activity remains robust and we anticipate further growth in 2018
Domestic and Foreign-Inbound Strategic
• We think the volume of domestic strategic deals may decline slightly in the second half, with some players waiting for the National Congress results
• But there could be some larger sized transactions around SOE reforms in particular, so values could increase somewhat
• For foreign inbound, we expect continued interest in R&C (consumer potential and generally fewer regulatory hurdles), pharma & healthcare (still opportunities for foreign investors around ageing populations), and infrastructure (Belt & Road opportunities for foreign players working with local businesses).
29
PwC
Outlook – the next six to twelve months (2 of 4)
China Outbound
• With the Chinese government’s enactment of new outbound regulations issued on 18th August 2017, the guidance for “encouraged”, “restricted” and “banned” outbound investments are finally clarified, although such practice has already been enforced by relevant authorities since last November
• While Belt & Road infrastructure, industrial upgrade, economically feasible natural resources exploration, agriculture and modern service industries investments are encouraged and expected to grow in future, increased scrutiny will be placed on certain industries such as real estate/hotels, cinema chains, and entertainment including sports clubs
• Some on-going transactions in the above mentioned restricted industries will be negatively affected by the new regulation
• Generally speaking, US dollar funds, overseas-listed companies and companies with overseas financing channels will still have an advantage over investors with only RMB funding sources
• Chinese companies will, however, still be motivated by factors to make moves abroad in the medium to long term, along with clearer regulations and enforcement
• Overall, the value of overseas investments in 2017 will be notably lower than in 2016 with volumeslikely to be broadly comparable
• We expect a gradual recovery in deal values and further growth in volumes in 2018.
30
PwC
Outlook – the next six to twelve months (3 of 4)
Private equity (and other financial investors)
• Unprecedented amounts of capital are now in play from “Big Asset Management”, including insurers (and other financial institutions); government and industry funds; SOE funds; and private-company funds
• With pressure to defray this wall of money, we expect financial buyer activity to continue to increase in the mid to long term, with outbound M&A a particular driver of growth – though with a shift to favouring investors with access to US$ capital
• Domestic M&A may also see some increase as Rmb players are forced to turn their attention closer to home
• The 19th National Congress in October 2017 may also result in some “wait and see” effect in the second half of the year
• We expect exit activities in the next six to twelve months will keep their momentum, with traditional PEs still facing some challenges around exits in accessing A-share IPOs, and growth over 2016 with trade sales and (in the slightly longer term) secondary (PE to PE deals) increasing in importance
• Overall, we think full year 2017 activity will be slightly lower than 2016 (which saw a spike in activity in its second half) but still stronger than 2015 and growing further in 2018, with the wall-of-money effect offsetting some of the more negative factors affecting the market.
31
PwC
Outlook – the next six to twelve months (4 of 4)
Key industry sectors
• Real estate
- With improving macro-economic trends, more stable growth in the real estate market is anticipated
- But because of unbalanced regional development, policy constraints and funding restrictions, domestic M&A activities and market consolidation in the real estate sector are likely to increase further
- Corporations that have sufficient land and capital reserves may grow rapidly in a highly competitive domestic market
- However, as government measures to discourage irrational overseas investment in certain areas (including real estate, hotels, film, entertainment and sports clubs) take effect, traditional real estate outbound M&A activity is expected to decrease in the near future
- Real estate corporations may also change their outbound investment strategies
• Technology
- We saw relatively high deal volume in technology but generally lower deal values, as activity is in start ups and new technology (AI, robotics, etc.) - this trend is expected to continue
- Continued domestic consolidation will drive more domestic activity, whilst technology related Belt & Road opportunities are likely to increase.
32
PwC
Data compilation methodology and disclaimer
Statistics contained in this presentation and the press release may vary from those contained in previous press releases. There are three reasons for this: ThomsonReuters and ChinaVenturehistorical data is constantly updated as deals are confirmed or disclosed; PricewaterhouseCoopers has excluded certain transactions which are more in the nature of internal reorganisations than transfers of control; and exchange rate data has been adjusted.
• Acquisitions of private/public companies resulting in change of control
• Investments in private/public companies (involving at least 5% ownership)
• Mergers
• Buyouts/buyins (LBOs, MBOs, MBIs)
• Privatisations
• Tender offers
• Spinoffs
• Splitoff of a wholly-owned subsidiary when 100% sold via IPO
• Divestment of company, division or trading assets resulting in change of control at parent level
• Reverse takeovers
• Re-capitalisation
• Joint Venture buyouts
• Joint Ventures
• Receivership or bankruptcy sales/auctions
• Tracking stock
• Property/real estate for individual properties
• Rumoured transactions
• Options granted to acquire an additional stake when not 100% of the shares has been acquired
• Any purchase of brand rights
• Land acquisitions
• Equity placements in funds
• Stake purchases by mutual funds
• Open market share buyback/retirement of stock unless part of a privatisation
• Balance sheet restructuring or internal restructuring
• Investments in greenfield operations
• Going private transactions
Included Deals Excluded Deals
33
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