The Boston Consulting Group (BCG) published the latest research report and
pointed out that China is starting an overseas merger and acquisition (M&A)
wave worldwide.
This report conducted an in-depth analysis of 776 M&A cases that were
initiated by 13 fast-growing economies including South Africa, India, Malaysia,
Brazil, Mexico, Turkey, Russia and China and targeted developed nations from
2000 to 2004. It shows that although China takes up 30 percent of the total GDP
of global fast-growing economies, its enterprises only took part in 82 overseas
M&A cases, constituting only 11 percent of these 13 countries' overall
offshore M&A. China's M&A strength far lags behind that of India and
South Africa.
At the same time, 62 percent of Chinese companies' M&A cases targeted
Asia, with Kazakhstan, Hong Kong, Indonesia and South Korea being the largest
destinations. The remaining nations were the US, Australia and other nations in
South America, North America and Oceania. To date, Chinese enterprises were
involved in few big M&A cases abroad, with the average transaction volume
reaching between US$180 million and 280 million. Only four M&A transactions
had a value of more than 1 billion US dollars each.
It is learnt that since 1986, China has started four overseas M&A waves.
The first wave lasted around a decade and focused on offshore investment. The
second took place during the 1996-1999 period and was triggered by Hong Kong's
return to China; enterprises began to switch their attention to overseas
expansion. Starting in 2000, the third M&A wave highlighted domestic
expansion and Chinese companies bought shares of joint ventures held by their
foreign partners one after another since most of these joint-venture contracts
expired at that time.
According to BCG Senior Vice President and Director David Michael, the
current M&A wave of Chinese firms overlaps the third to a certain degree,
since it surfaced at the end of 2001 when China was about to enter the World
Trade Organization. Different from the past, offshore expansion has won a
dominant role and mining, energy as well as technology and communication have
become the most popular industries that practice M&A.
David Michael pointed out that compared with their western competitors,
Chinese purchasers encounter more difficulties in winning M&A battles due to
an underlying reason -- politics. Most people in western countries are not
prepared for Chinese enterprises' overseas expansion, so they will feel
uncomfortable when their domestic natural resources are purchased by companies
from another nation with a distinct regime from their own. In addition, they
worry that if the buyers are the low-cost Chinese firms instead of western ones,
existing employees are more likely to be dismissed.
Michael explained that compared to M&A players from other nations,
Chinese enterprises actually have fewer employment reductions because they have
relatively less degree of the productive duplication than their rivals from the
west.
This report believes that despite the failure of some Chinese companies'
recent overseas M&A transactions, offshore M&A has become a trend of
Chinese companies' development and will grow stronger with
time.
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