Chinese takeover activity in UK and beyond set to accelerate further, despite political rhetoric and Brexit vote

 
William Turvill
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West Bromwich Albion v Chelsea - Premier League
Yunyi Guokai acquired West Bromwich Albion Football Club earlier this year (Source: Getty)

Edinburgh-based flights search website Skyscanner and West Bromwich Albion Football Club have been among the high-profile UK targets gobbled up by Chinese businesses this year.

With most of December still to come, China-to-UK mergers and acquisitions (M&A) activity has already hit record levels. To date, 31 deals worth $7.65bn (£6.01bn) have been agreed, according to Dealogic statistics. This marks a record number of deals and the total value ranks behind only 2008, when 10 deals totalled $16.87bn.

This year has also set new highs for China-to-US deals – with a record 153 deals worth a record $67.29bn – and China-to-Europe deals – with a record 224 worth a record $94.88bn.

Read more: China's European spending spree undeterred by UK's Brexit vote

Political pressure on record levels

However, with 2017 on the horizon, these deal levels appear to be at risk:

China rules won’t change much

But China M&A experts spoken to by City A.M. have played down the significance of the changes in China.

“I don’t see this as being something other than some internal housekeeping,” said Nick Davis, chief executive of law firm Memery Crystal, which has a partner firm, Yingke, in China and worked on the West Brom deal.

“I think the plan is just tightening slightly to make sure that… the days of the Chinese overpaying just because they can are long gone. And there needs to be a more sophisticated approach to M&A. And I think that’s probably what sits behind this.”

He added: “Big picture, it’s not going to make a huge amount of difference.”

Simon Clinton, of Magic Circle law firm Clifford Chance, agreed. “I really do question how much of an impact it will have on the overall volume of China outbound M&A,” he told City A.M.

“Clearly, there will be far fewer $10bn-plus deals and deals involving the acquisition of non-core assets and high value real estate but, together, those categories currently form a relatively small proportion of the overall volume.”

Read more: China deal frenzy set to continue according to Freshfields

US rhetoric and Brexit vote likely to lead to more UK takeovers

Dealmakers are unlikely to panic over China, then. But M&A experts spoken to by City A.M. are more concerned about Europe, Germany and, in particular, the US.

“The rhetoric used during the presidential campaign caused concern to the Chinese authorities,” said Clifford Chance’s Clinton.

During my recent visits to Beijing and Shanghai it was clear that many SOEs [state-owned enterprises] and private entities are waiting to see if the rhetoric will translate to legislation being amended to curtail investment by Chinese companies, in particular SOEs.

“Chinese businesses will go where they feel most welcome,” said Angus Knowles-Cutler, China services group chairman for Deloitte. “So if the US seems increasingly unfriendly, what we’ll find is more Chinese interest and Chinese investment in Europe. And I think while Chinese buyers look into Europe, the UK – the fifth largest economy in the world, all the work that was done by the last Prime Minister and chancellor around the golden age – makes the UK look a prime area of interest for the Chinese.”

Clinton, of Clifford Chance, was also positive about UK M&A prospects:

The uncertainty that surrounded the UK government's delay in approving the Hinkley Point project and talk of introducing a government veto on certain types of foreign investment has largely been removed by the subsequent meetings between senior members of the UK government and the Chinese authorities.

Clinton added: “Clearly, the Brexit decision worried Chinese investors, but the recent depreciation of sterling has, to an extent, acted as a counter-balance to the uncertainty surrounding the Brexit vote.”

Davis of Memery Crystal went further, suggesting the Brexit vote made sense in China.

“It’s made it more attractive,” he said. “Because of the exchange rate initially. But when you talk to Chinese lawyers, for example, the fact that the British government didn’t have control of its own laws they just find astonishing.

“Brexit to most of the people I’ve spoken to makes sense. They didn’t see it as anything other than if there was a fall in prices there’s an opportunity to buy what would they would have already brought for a lower price.”

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