Brexit decision to leave EU last year is unlikely to dampen M&A opportunities

Chinese companies will still be tempted by investment opportunities in the United Kingdom, despite the uncertainty of Brexit, experts said.

The UK voted last year to leave the European Union after more than 40 years. Talks have already started about the pending "divorce" from the EU, which will take up to two years.

But even though the business landscape could change significantly, companies in China should still be looking for acquisitions there.

Gerard Lyons, a senior adviser for mergers and acquisitions advisory firm DealGlobe, pointed out that the British government was positive about Chinese investment.

"Brexit uncertainties make the UK keen to attract more Chinese acquisitions, particularly in sectors including technology innovation and infrastructure," said Lyons, who was the chief economic advisor to Boris Johnson when he was mayor of London before he became foreign secretary.

"They are also sectors that China is keen to invest in abroad," he added.

Lyons, who is also a director for Bank of China in London, was speaking at the launch of a Chinese investment report released by DealGlobe, which is based in Shanghai, and Hurun, known for publishing an annual rich list.

It showed there were 438 Chinese outbound merger and acquisition, or M&A, deals globally last year, an increase of 20 percent in 2015.

The overall value of those deals was $216 billion, a massive jump from the 2015 figure of $87 billion, with the UK ranked fourth in the M&A list, equal with Australia, on 25 deals.

Still, the number one spot went to the United States with 84 Chinese M&A transactions.

"Factors leading to the increase in M&A activity include the search of Chinese companies for overseas growth and intellectual property rights," said Feng Lin, founder and chief executive officer of DealGlobe. "And their easy access to financing."

Feng confirmed that one key development was the increased activity from small and medium-sized companies.

Last year, only 13 percent of the total number of M&A deals were made by State-owned enterprises. The remainder were put together by private companies and financial investors such as equity funds.

Already this trend has become clearer in the first quarter of this year with private companies being involved in 83 percent of outbound transactions.

In 2016, major global M&A deals included China National Chemical Corporation's, or ChemChina, $43 billion purchase of Switzerland's Syngenta AG.

There was also State Grid Corporation of China's $12.4 billion purchase of Brazil's CPFL Energia SA and Bohai Financial Investment Holding's takeover of CIT Group's aircraft leasing assets for $10 billion.

Since then, Chinese outbound M&A deals have slowed in the first quarter of this year. Up to 89 deals were announced with a value of $26 billion, a drop from the $39 billion during the same period in 2016.

But analysts are still optimistic about the long-term future.

"The temporary drop in the first quarter may be a reflection of market participants becoming more rational," said Michelle Wang, director of marketing at DealGlobe.

"This means they will be keen to invest in post-merger integration more efficiently," he added.

But, Chinese companies face challenges as they expand globally, according to Gary Miller, a partner at the law firm Mishcon de Reya LLP in London.

"Steps, such as taking the time to get to know target companies, ensuring that the right contracts are in place and the right reporting procedures are present, will all contribute toward helping Chinese buyers realize value for their acquisitions," he said.

cecily.liu@mail.chinadailyuk.com