M&A activity recovers in Q2

By Zuo Maohong

Merger and acquisition (M&A) activity went up slightly in the second quarter mainly because stimulus measures spurred business confidence while government policies encouraged consolidation in industries such as steel and financial services.

After hitting a two-year low in the first quarter, reported domestic transaction volume jumped by 32 percent to 811 deals in the second quarter, according to a report released yesterday by PricewaterhouseCoopers (PwC) China.

Despite the rebound, foreign-backed activity remains depressed.

Benjamin Ye, a Shanghai-based PwC transactions partner, said foreign-involved transactions dropped from 284 in the second half of 2008 to 188 in the first half of this year.

Domestic companies, which are less impacted by the financial downturn, are showing a growing interest in outbound investment.

The PwC report showed outbound acquisition number increased to 65 in the first six months, compared to 59 in the same period last year. The total deal value stood at $14.7 billion, more than three times as high as that in the first half of 2008.

Most outbound investment was related to acquisitions in traditional sectors such as oil, mining and metals. The strong rebound in deal value was attributed to Sinopec’s $8.9 billion offer for Switzerland’s Addax Petroleum, the report said.

“Besides the energy and oil sectors that have drawn continuous attention, investors have also begun to show interest in non-traditional sectors such as manufacturing,” Wang Xiaogang, a transactions partner based in PwC’s Beijing branch, told reporters yesterday at a news conference.

He cited Shanghai Electric’s printing and packaging division, which announced last month a plan to acquire shares in the US-based Goss International that would make the company the second largest shareholder in the US printing magnate.

Looking forward to the rest of the year, the report said M&A activity will recover to 2008 levels as China’s economy continues to improve and more IPOs come to the A-share market.

The report predicts that overseas investment would continue to grow, citing several landmark deals in the pipeline outside of the familiar resources sectors.

However, foreign investment is expected to remain weak, as recovery in Western economies will lag behind China, the report said.

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