Chinese M&A is booming in the UK and across Belt and Road countries

 
William Turvill
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China Daily Life
Chinese takeover activity is down globally, but attention has been focused on the Belt and Road route (Source: Getty)

Chinese companies are embarking on a buying spree across the Asian giant’s so-called Belt and Road trade route, with the UK emerging as a major target.

Overall, there has been a sharp drop in outbound mergers and acquisitions (M&A) activity from China so far this year amid a Beijing crackdown on capital outflows.

Thomson Reuters has tracked $84.5bn (£66bn) of Chinese takeovers globally so far this year, down 42 per cent compared with the same period last year. The number of deals has also fallen 10 per cent to 514.

However, across the 68 countries that are part of the Belt and Road initiative there have been $33bn of deals, already surpassing $31bn figure for the whole of 2016.

“The tightening of Chinese capital outflow was intended to ensure that large Chinese business operating in certain sectors – take for example an industrials company or an airline – are not buying football clubs or media assets, or other assets out of whack with their sector,” said Chris Sullivan, an M&A partner at law firm Clifford Chance.

“If you look at the Belt and Road initiative, which has the significant benefit of state endorsement, then it’s not surprising that the capital controls have been freer for those countries that are part of that project.”

The UK has proven a major target for Chinese buyers, sitting behind only Singapore in terms of the total value of takeovers. As of yesterday, Thomson Reuters had tracked 29 Chinese takeovers of UK companies worth a total of £13bn, including China Investment Corporation’s £10.5bn deal for warehouse company Logicor. At the same time last year, 25 deals worth £3bn had been agreed.

Top 10 target nations Value of deals (£m) Market share No. of deals
Singapore 15,026.9 22.5 26
United Kingdom 12,959.9 19.4 29
United States of America 8,503.6 12.8 91
Hong Kong 4,625.1 6.9 129
Mongolia 4,535.4 6.8 2
Australia 3,959.5 5.9 23
United Arab Emirates 2,141.0 3.2 3
Brazil 1,888.3 2.8 13
Germany 1,529.4 2.3 26
Italy 1,510.1 2.3 14

Toby Tao, a director at Deloitte, said appetite for big real estate deals, such as the Logicor takeover, have driven China-UK M&A figures higher this year. He said: “With strong demand to diversify their asset portfolio globally, investors from Far East feel that the weak pound gives them a golden opportunity to invest in the London property market.”

Clifford Chance’s Sullivan, meanwhile, pointed to the UK government’s continued openness to foreign deals. He said: “The decision to move forward with Hinkley Point quelled some of the fears about the UK government equivocation on Chinese investment.

“It is clear that Chinese investors continue to view the UK as a strong and stable home for their capital.”

Meanwhile, Chinese takeover activity in the rest of Europe has slowed, with experts pointing towards protectionist noises coming from certain countries and the EU. So far this year, there have been 124 deals across the whole continent worth £19.7bn, down from 190 worth £53.5bn at the same time last year.

Steve Ivermee, managing partner covering transaction advisory services at EY, added:

The first half of 2016 saw a surge of Chinese outbound M&A, so the blip in the first half of this year could be a reflection of more rational decision making as Chinese businesses spend more time examining the fit with their existing business of an acquisition.

Looking ahead what we could see is more deals from China in sectors that support the strategy of both the businesses and the government.

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