A clampdown by the Chinese state regarding capital outflows in general and the acquisition of foreign targets specifically had a severely dampening effect with outbound purchases by Chinese buyers dropping by a tremendous 86 percent (by value) compared to the same quarter last year.
Warnings from state regulators about the dangers and downsides of foreign buyouts have gathered pace over the past year.
“Overseas mergers and acquisitions can sometimes resemble a rose with thorns, you must be careful and you must do your due diligence,” Pan Gongsheng, the head of the State Administration of Foreign Exchange (SAFE) and a vice governor of the People’s Bank of China (PBOC), told Shanghai Securities News in March, according to news agency Reuters.
This, in conjunction with increased scrutiny of Chinese buyers by regulators and politicians in target markets – due firstly to a high proportion of such deals being cancelled and secondly to increased political sensitivities – has prompted the steep scaling back of activity, both recently, and likely in the months ahead.
Cross-border M&A deals featuring European targets fell 39 percent for the quarter, partly due to the impact of China’s caution but also due to buyers from elsewhere in the world staring down the barrel of Brexit and continent-wide election uncertainty and opting to take a more restrained approach. The exception to this was in the U.S. where buyers of European targets hit a first quarter peak unseen since 2008.
One quarter down, three to go and the outlook for the rest of 2017 remains favorable despite significant political headwinds, according to Katharine Dennys, EMEA research editor at Mergermarket.
“High liquidity, access to cheap financing, healthy balance sheets and a need to demonstrate growth to shareholders via M&A all provide a positive outlook for 2017. Technology will drive M&A activity, with disruptive industries such as artificial Intelligence, fintech and the internet of things continuing to attract investor attention,” Dennys posited.
Looking at the effect of politics on forward activity, Dennys noted that the jury is still out with regards to President Donald Trump’s potential influence.
“Despite Trump’s campaign promise to block anti-competitive deals, such as the US$ 105.0bn AT&T/ Time Warner deal, his attitude once in office suggests a more lenient approach towards such high profile deals,” the Mergermarket researcher noted, before turning to consider the role of Chinese policymakers, given their new scrutiny of foreign acquisitions valued at more than $2 billion.
“It is likely that China’s outbound acquisition spree will become more muted in 2017,” Dennys affirmed.
