China Inc's outbound acquisitions spree in 2015 helped push Asia-Pacific's annual deal value past $1 trillion for the first time, with 2016 set for a bigger splurge still as Chinese firms buy even more assets abroad to sidestep slowing domestic growth.
Asia-Pacific Mergers and Acquisitions totalled $1.2 trillion so far this year, up 46% from last year, preliminary data from Thomson Reuters showed, as China rediscovered an appetite for outbound deals after 2014's 20% drop. With private companies like Fosun International Ltd in the vanguard, Chinese firms spent a record $102 billion so far in 2015, the data shows.
As well as economic growth slowing to its weakest pace in years, bankers and analysts say a need to acquire cutting-edge technology to improve manufacturing; environmental issues and a weakening Yuan will all help send Chinese firms like chipmakers and agrochemicals suppliers searching for deals overseas next year.
"China is on the move, we are preparing for a busy year for deal making," said Joseph Gallagher, Head of M&A for Asia Pacific at Credit Suisse. "Chinese outbound activity is set to pick up with a focus on the semi-conductor, power and financial sectors," Gallagher added.
A strong year for deal-making bodes well for global investment banks in the region. This year, Goldman Sachs was the top adviser with a 16.7% market share, followed by Morgan Stanley and HSBC Holdings, surging from 28th rank in 2014 after working on a slew of deals from billionaire Hong Kong tycoon Li Ka-shing.
China, Hong Kong and Australia were the three most active M&A markets in Asia Pacific, the data showed.
China's large state-owned enterprises (SOE) played a less active role in 2015's M&A compared to their mid-2000s heyday as President Xi Jinping's wide-ranging anti-graft investigations turned several officials cautious about making big decisions, bankers said.
But Beijing ardently backs deals in niche areas like semi-conductors and agrochemicals, bankers said. A prime example it state-backed Tsinghua Unigroup Ltd: It plans to invest 300 billion Yuan ($47 billion) over the next five years in a bid to become the world's third-biggest player in chip-making, muscling its way into a trio made up of Intel Corp (INTC.O), Samsung Electronics Co Ltd and Qualcomm Inc.
SLOWING GROWTH, RISING COMPETITION
Among the deals Chinese companies are currently working on are energy and waste treatment investment firm Beijing Enterprise Holdings Ltd's pursuit of German waste management company EEW in a deal potentially worth about $1.8 billion.
Media reports have also said that state-owned China National Chemicals Corp is weighing a possible bid for European agrochemicals maker Syngenta AG, which has a market value of $35.1 billion. ChemChina, as the company is widely known, declined to comment.
China's weakening currency, forecast to slip a further 5-7% next year, would also encourage more money to leave China, analysts say. This follows a surprise decision by Beijing in August to devalue its currency 3%.
"The weakening Yuan coupled with a slowdown in the domestic market is a strong driver for China outbound M&A, factors that had driven Japan outbound M&A for the last five years," said Mayooran Elalingam, Head of Deutsche Bank's Asia-Pacific M&A in Hong Kong.
Bankers also expect more M&A among Chinese companies, especially technology firms, as the slower economic growth and intense competition force companies to pursue new avenues for revenue growth.
"The SOE reforms and domestic industry consolidation are the other themes likely play out strongly next year," said Brian Gu, Co-head of China Investment Banking at J.P. Morgan in Hong Kong.
"As growth shrinks in many sectors, you will see companies moving in to drive consolidation and becoming aggressive in some situations, something which is emerging as a new theme in China," he added.