Chinese acquirors continued their global buying spree in 2017, with China outbound M&A volume reaching $149.2bn—just $21.6bn behind the US.
Volume inching closer to dethrone the US
Despite the first year-on-year drop in outbound M&A volume since 2008–2009, China moved even closer to the US in terms of flexing its muscles in acquiring businesses overseas in 2017. Boosted by the record-breaking $16.1bn leveraged buyout of Global Logistic Properties by a consortium led by China Vanke, Chinese outbound M&A finished the year at $149.2bn, a mere $21.6bn behind the US ($170.8bn)—the narrowest gap ever from the perennial king of global outbound M&A.*
Chinese buyers find bargains
Beijing’s capital control measures since 2016 have effectively slowed Chinese acquirors overspending on foreign assets, as observed in 2015. Median EV/EBITDA multiples on Chinese outbound deals have tracked significantly below that of global M&A for 2 consecutive years, as global median EV/EBITDA reached an all-time high of 14.3x in 2017.
Paving the M&A belt-and-road with logistics
The One Belt One Road initiative proposed by President Xi Jinping in 2013 may not have become a catchphrase among M&A journalists yet, but dealmakers know better. China outbound M&A volume targeting OBOR countries reached a record $47.1bn in 2017—an 86% uptick from the $25.3bn reached in 2016.
For the fourth consecutive year, natural resources and utilities took 20% of volume, compared to 60%– 70% levels before 2013. TMT, however, maintained around a 14% share in 2017. The breakout industry in 2017 was real estate, making up almost 24% in China outbound M&A volume. With two monster real-estate deals, China warms up for economic and infrastructure leadership across Asia, the Middle East, and Africa. These deals include the $16.1bn Global Logistic Properties LBO, and the $13.8bn acquisition of Logicor Europe by CIC.
Failed ambitions
Notwithstanding the positive outlook, the dark cloud hurtling through the sky was the number of failed deals. In 2017, China saw a record 68 failed outbound acquisitions, surpassing the previous high of 65 deals in 2016. The record does not include Ant Financial’s acquisition of MoneyGram. The deal was rejected by CFIUS in early 2018 on national interest concerns. Recent commentary by the state news agency Xinhua also warned of a “bumpy” trade journey with the US in 2018. Is this a signal of bad times just around the corner?