China’s M&A Resilient Despite Global Downturn

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Jan. 6 – Thomson Reuters said in a report that China’s mergers and acquisitions (M&A) activity was the best in the region last year despite the global downturn.

China’s M&A activity for 2008 grew by 44 percent to US$$159.6 billion worth of deals compared with the year-on-year 11.1 percent fall in the region, excluding Japan.

This is in contrast with global M&A volume which dropped to a third of its previous rates in 2007 at US$2.89 trillion, its lowest rate since 2005. Global M&A deals were stunted by the lack of available credit,the depressed stock markets and the global financial crisis. Now, only companies with enough cash and stable stock prices will be able to take advantage of the drop in equity prices and make acquisitions.

Last year, China’s biggest M&A deal was made when the Aluminum Corp of China and Alcoa’s purchased Rio Tinto for US$14.3 billion through their Singapore-based joint venture Shining Prospect Pte Ltd.

“China was the only country in the region to experience growth in such a tumultuous environment, and it’s also the most targeted nation in Asia with a 26.9 percent market share, ” the report pointed out.

The report went on to say that China’s inbound activity saw a 34.2 percent year-on-year increase, making the country a top destination for global investment. Cross-boarder M&A activity also increased by 51.1 percent from last year’s figures to reach US$78.4 billion worth of deals in 2008.

In AmCham Shanghai’s 2008 China Business Report, the majority of American businesses polled said that the acquisitions they pursued in the last 24 months were seen as a way of gaining market access, enlarging the customer base and acquiring capacity.

The implementation of China’s Anti-Monopoly Law also did not change American business’ M&A strategy as 89.5 percent said it would not impact their plans in the country. American companies said that the most challenging part of M&A acquisitions was negotiating the valuation gap and conducting private due diligence.

According to a PwC report, domestic M&A deals in China dropped by 47 percent from July to November 2008 compared to 2007 figures at 543 announced deals although it followed a strong growth in the first half to reach 920 announced transactions.

Analysts told China Daily that overall M&A activity in China will slowdown in the first half of the year, but eventually pick up again during the second half when pricing expectations adjust.