- Outbound deal value rebounds to pre-COVID level
- Middle East SWFs race forwards
Deals in China's automobiles sector drove the country's outbound M&A back to pre-COVID levels in 1H19. While domestic dealmaking and inbound activity fell, outbound deal volumes tripled from 1H22.
China’s outbound transactions reached USD 31.77bn value in 1H23, up from the lowest-ever USD 10.96bn the same period of the previous year, according to Mergermarket data. At the same time, deal count decreased by 24% to 114, which translated as an increase of 289% in average deal value.
Auto and truck deals contributed an incredible 74% (USD 23.6bn) to China’s total outbound activities in 1H23, thanks in part to Beijing's efforts to encourage automakers to go overseas. The largest deal was Geely Automobile’s [HKG:0175] purchase of a 49.9% stake in Malaysia-based PROTON.
When the deal was announced in January, Geely said that would provide "a valuable opportunity" to enter the passenger vehicle market of right-hand drive models in Southeast Asia. Some 15 Asian territories drive on the left, including Malaysia and Hong Kong.
Brakes
Ongoing trade tensions between the US and China put the brakes on China's outbound M&A in the technology sector. Deals shrank to just USD 336m in 1H23 from USD 3.2bn the previous year.
On the other hand, China’s inbound dealmaking reached USD 18.9bn across 80 transactions in 1H23, down from USD 22.7bn across 107 transactions the previous year. Meanwhile, 1,331 domestic deals wrapped up USD 129.1bn in deal value, down from 1,570 deals with USD 202.27bn the previous year.
Racing start
Tianqi Lithium’s [SHE:002466] planned acquisition of Toronto- and NASDAQ-listed Sigma Lithium Corp’s [NASDAQ:SGML] Brazil mines will be more likely to dominate the Chinese outbound list for 2H23, if the deal reaches the finishing line. The Chinese buyer was reportedly working on a USD 3bn-equivalent loan to back its bid in May.
Another situation to watch in the second half is Pearl Engineered Solutions, a Hong Kong- and Singapore-headquartered plastic injection molded and metal stamping components manufacturer. Its sponsor, Platinum Equity, launched a sale in June, as reported. It has a score of 69, according to Mergermarket's Likely to Exit (LTE) predictive algorithm.*
On the buyside, buyers from the Middle East are likely to continue to be active. Bidders from Saudi Arabia and United Arab Emirates (UAE) were the third and fourth largest buyers in 1H23, behind the US and Singapore. Their sovereign wealth funds (SWFs) have driven up inbound activity.
At the top of the table, Singapore has overtaken the US as the top destination for outbound deals from China. The city state attracted USD 24.9bn from Chinese buyers. eight times as much as the US.
Singaporean buyers also announced deals worth USD 7.2bn in inbound investment to China in 1H23, doubling the deals from US investors.
The US might have dropped out of the race for now, but these trends are likely to keep Chinese M&A moving forwards in 2H23.
*Mergermarket's LTE predictive analytics assign a score to sponsor-backed companies to help track and predict when an exit could occur through M&A, an IPO, a direct listing or a deSPAC transaction.
Analytics by Manu Rajput
