Key trends:
- China (including Hong Kong) M&A in 2022 posted its lowest deal volume since 2007, while deal value dipped to its lowest level since 2014.
- Semiconductor deals saw an uptick, despite a downtrend across other industries.
- China buyouts and exits plunged in deal value, marking their lowest points since 2005 and 2009, respectively.
China’s M&A landscape continued to deteriorate in 2022, beset by prolonged nationwide COVID-19 restrictions, rocketing global inflation, and geopolitical tensions, all of which contrived to quash Chinese dealmakers’ enthusiasm.
Total deal value slumped 34.17% to USD 406.35bn from 3,246 transactions compared with USD 617.31bn from 5,280 deals in 2021, according to Dealogic data.
Despite Chinese policymakers working hard to jump-start the post-pandemic economy, rolling out multiple state targets and modifying investment rules over the course of the year, dark clouds continued to gather.
Turning inward
The tailspin in China’s M&A market was exacerbated by a lack of mega deals of the sort that used to grab the headlines in the country’s cross-border dealmaking news. In 2022, the few big-ticket multi-billion-dollar transactions that were agreed came almost entirely from reshuffles at state-owned enterprises (SOEs).
China’s outbound activity continued to be overshadowed by inbound movement last year, as a result of the country’s border closures, international recessions, and a tightening of the regulatory environment. Outbound investment used to hold the lion’s share in China’s M&A market before the pandemic hit.
Buyouts in China reached USD 1.87bn, collapsing from USD 49.18bn in 2021, while exits totaled USD 1.54bn, a dramatic fall from USD 16.39bn previously. Specifically, Chinese private-equity (PE) houses signed 18 deals for USD 2.41bn in 2022, plunging from 66 deals worth USD 62.81bn the year before.
Silver lining
Despite the doom and gloom, there was some positive news in China M&A. Industrial upgrades, an ongoing transition to renewable energy and other environmentally-friendly initiatives, and SOE restructuring were among state-backed initiatives that sparked investor attention over the past year.
A Chinese government work report, delivered by Premier Li Keqiang on behalf of the State Council last October, highlighted the importance of hardcore technology development. It goes some way to explaining why semiconductor deals bucked the industry-wide downturn in 2022.
Semiconductor transactions last year almost broke new ground, falling only 0.26% short of their record deal value set in 2020. Indeed, sales of semiconductors ensured the computers & electronics sector stayed out in front of every other industry in 2022 despite deal value falling 40% year-on-year to USD 67.68bn.
In July, China-based semiconductor wafer manufacturer Wuxi Xichan Weixin Semiconductor completed a takeover of Dutch semiconductor manufacturer Ampleon for over CNY 10bn (USD 1.48bn), according to the website of Henan Asset Management, an investor in Xichan Weixin.
Back in business
Thanks to the financial firepower accumulated over the past three years, and the country’s lifting of pandemic restrictions and re-opening of its borders, Chinese buyers are ready to flex their financial muscles on the global M&A stage. However, activity is unlikely to start with a bang.
While dealmakers will be proactively weighing overseas opportunities, targets are likely to be selective, particularly those that align with China’s state objectives. Moreover, foreign and direct investment (FDI) screening in target countries shows no sign of being relaxed over the coming year, which will be a major concern to Chinese buyers.
Mergermarket has evaluated those deep-pocketed Chinese firms poised to re-launch their M&A strategies, and considers Supcon [SHA:688777], CGN New Energy, Chengda Pharmaceuticals [SHE:301201], and Tenka Solar, among others, to be best-placed to return to the market.
