PWC M&A 2019 MID-YEAR REVIEW AND OUTLOOK - AUGUST 2019 - PWC CHINA
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PwC M&A 2019 Mid-Year Review and Outlook August 2019
Foreword – explanation of data shown in this presentation (1
of 2)
• The data presented is based on information compiled by ThomsonReuters, ChinaVenture, AVCJ, public news and PwC
analysis unless stated otherwise
• Thomson Reuters and ChinaVenture record announced deals. Some announced deals will not go on to complete
• The deal volume figures presented in this report refer to the number of deals announced, whether or not a value is
disclosed for the deal
• The deal value figures presented in this report refer only to those deals where a value has been disclosed (referred to in this
presentation as “disclosed value”)
• “Domestic” means China including Hong Kong, Macau and Taiwan
• “Outbound” relates to mainland China company acquisitions abroad
• “Inbound” relates to overseas company acquisitions of domestic companies
• “Private Equity deals” or “PE deals” refer to financial buyer deals with deal value over US$10mn and/or with undisclosed
deal value, invested mainly by private equity GPs but also including direct investments by financial institutions and
conglomerates which are of the nature of private equity type investment
PwC 2Foreword – explanation of data shown in this presentation (2
of 2)
• “VC deals” refer to financial buyer deals with deal value of less than US$10mn and/or with undisclosed deal value, but
invested by financial buyers
• “Strategic buyer” refers to corporate buyers (as opposed to financial buyers) that acquire companies with the objective of
integrating the acquisition in their existing business
• “Financial buyer” refers to investors that acquire companies with the objective of realising a return on their investment by
selling the business at a profit at a future date and mainly, but not entirely, comprises PE and VC funds
• In order to exclude foreign exchange impact, deal values from 2016 to 2018 were adjusted based on the 06/30/2019
Rmb/US$ exchange rate
PwC 3Overview
China M&A fell by 18% in the first six months of 2019 to US$264 billion – the
largest single-period decline over the last decade
Total deal volume and value, from 1H16 to 1H19
% Diff % Diff
vol. val.
1H16 2H16 1H17 2H17 1H18 2H18 1H19 1H2019 1H2019
vs. vs.
Volume Value Volume Value Volume Value Volume Value Volume Value Volume Value Volume Value 2H2018 2H2018
Strategic buyers (US$bn) (US$bn) (US$bn) (US$bn) (US$bn) (US$bn) (US$bn)
Domestic 2,449 165.6 2,421 156.4 1,966 121.6 3,145 246.1 2,790 192.6 1,988 131.3 2,236 142.3 12% 8%
Foreign 139 4.1 132 2.7 165 5.9 90 8.1 120 8.4 58 11.7 95 8.3 64% -29%
Total Strategic buyers 2,588 169.7 2,553 159.1 2,131 127.5 3,235 254.2 2,910 201.0 2,046 143.0 2,331 150.5 14% 5%
Financial buyers
Private Equity 649 94.2 1,118 121.3 657 86.4 667 90.5 851 86.3 1,069 130.1 580 86.8 -46% -33%
VC 1,599 2.3 1,893 3.4 1,137 1.6 1,201 1.5 1,614 4.7 1,796 2.3 1,738 1.2 -3% -47%
Total Financial buyers* 2,248 96.5 3,011 124.7 1,794 88.0 1,868 91.9 2,465 91.0 2,865 132.4 2,318 88.0 -19% -34%
China mainland outbound
SOE 62 48.8 54 15.4 66 13.8 35 13.6 22 13.2 42 7.4 32 2.3 -24% -69%
POE 316 60.2 293 44.1 259 24.7 208 33.7 154 18.6 156 31.3 260 15.0 67% -52%
Financial buyers 95 22.0 100 14.8 104 21.9 134 11.7 139 8.5 114 12.9 134 9.5 18% -26%
Total China mainland outbound 473 131.0 447 74.3 429 60.5 377 59.0 315 40.2 312 51.6 426 26.8 37% -48%
HK outbound 151 10.7 131 12.1 125 6.9 118 5.7 102 16.1 125 7.8 63 8.6 -50% 11%
Total 5,365 385.9 6,042 355.5 4,375 261.0 5,464 399.2 5,653 339.9 5,234 321.9 5,004 264.4 -4% -18%
* Financial buyer-backed China mainland outbound deals are also included in financial buyer deals, but they are not double counted in the total deal volume and deal value in the table above
Source: ThomsonReuters, ChinaVenture and PwC analysis
PwC 5The decline in deal values was driven by steep falls in outbound and PE
deals, mitigated by a some rise in domestic M&A
Deal value by main category (excludes VC)
US$ billion
450
400
59.0
350
131.0
74.3 40.2
300 90.5 51.6
250 60.5 8.1 86.3 26.8
94.2 121.3
200 130.1
8.4 86.8
4.1 86.4
150 2.7
11.7 8.3
5.9 246.1
100 192.6
165.6 156.4
121.6 131.3 142.3
50
0
1H16 2H16 1H17 2H17 1H18 2H18 1H19
Domestic Strategic Buyers Foreign Strategic Buyers Private Equity Deals China Mainland Outbound
* US$9.4bn of financial buyer-backed China mainland outbound deals are also recorded in private equity deals, US$0.1bn are recorded in VC deals(excluded from this chart)
Source: ThomsonReuters, ChinaVenture and PwC analysis
PwC 6Deal volumes actually increased in most sectors (including outbound)
indicating that there is still reasonable deal flow for smaller transactions,
except for PE which fell sharply by 46%*
Deal volume by main category (excludes VC)
No.
4,500
4,000 377
447 315
3,500 473 667
851 312
1118 90 426
3,000 649 429
120
1,069 580
2,500 139 132 657
95
2,000 165 58
1,500 3,145
2,790
2,449 2,421 2,236
1,000 1,966 1,988
500
0
1H16 2H16 1H17 2H17 1H18 2H18 1H19
Domestic Strategic Buyers Foreign Strategic Buyers Private Equity Deals China Mainland Outbound
* 66 financial buyer-led China mainland outbound deals are also recorded in private equity deals, 68 are included in VC deals(excluded from this chart)
Source: ThomsonReuters, ChinaVenture and PwC analysis
PwC 7The total number of mega-deals (> US$1bn) remained flat, with significantly
fewer large outbound transactions offset by an increase in the number of
mega-deals from domestic strategic players
No. Number of deals with value > US$ 1 billion
70
60
50 14
25
4
13
40 7
9
12
23 3
30 10
14 2
13
14 2
20 2 3
6
31
10 28
24
10 19 18
15
8
0
1H16 2H16 1H17 2H17 1H18 2H18 1H19
Domestic Strategic Buyers Foreign Strategic Buyers Private Equity Deals China Mainland Outbound
Source: ThomsonReuters, ChinaVenture and PwC analysis
PwC 8Strategic buyers
With outbound opportunities limited and the trade-war in play, China’s renewed focus on
its domestic economy drove an 8% increase in the value of domestic strategic M&A with 28
mega-deals (compared to 18 in the prior six months) and deal volumes climbing 12%;
foreign inbound investments rose by 64% in volume but declined by 29% in value
Strategic buyer deals – Domestic & Foreign
No. US$ billion
3,500 300
3,000 246.1
250
2,500
192.6 200
2,000 165.6
156.4
142.3
131.3 150
121.6 3,145
1,500 2,790
2,421
1,966 2,236 100
2,449 1,988
1,000
50
500
5.9 8.1 8.4 11.7 8.3
4.1 2.7
0 139 132 165 90 120 58 95 0
1H16 2H16 1H17 2H17 1H18 2H18 1H19
Announced Deal Volume Inbound Announced Deal Volume Domestic
Announced Deal Value Inbound Announced Deal Value Domestic
Source: ThomsonReuters, ChinaVenture and PwC analysis
PwC 10Industrials M&A hit a record high, mainly because of 7 mega deals (around
$16.4 billion in aggregate and consumer sector M&A grew by 73%
Strategic buyer deal value by industry sector
US$ billion
300
250 15.8
13.8
7.3
200 30.4 8.0
8.2
25.1 10.9
8.4 23.5
150 10.0 5.6
8.7 9.9 29.7
35.3 8.9 8.9
27.4 17.1 7.8 10.5
25.0 10.7
16.3 4.9 14.5
100 26.1 16.0 29.3 24.7
20.2
27.7 9.1 13.7
15.5 22.5
14.0 68.5 26.1 17.8
25.4 15.4 10.7
50 13.0 22.1
20.8 30.9 30.5
38.2 22.0
28.4 38.7 29.1 41.5
27.3 18.3 24.7
0
1H16 2H16 1H17 2H17 1H18 2H18 1H19
Industrials Real Estate Consumer Financials Materials High Technology Healthcare Energy and Power Others
Source: ThomsonReuters, ChinaVenture and PwC analysis
PwC 11In volume terms, industrials, consumer, technology and healthcare were
active sectors
Strategic buyer deal volume by industry sector
No.
3500
196
3000 220
145
364 225
2500 171 126
195 275
236 379 96
251 295 131
2000 192 130 69 166
247 142 336 205 171
439 274
215 182
273 206 198
1500 299 271
164 227 348 206
167 218 524
543 211 360
1000 478 154
393 116
317 535 322 373
440 371 468
500 333 264
475 630
387 384 323 414 329
0
1H16 2H16 1H17 2H17 1H18 2H18 1H19
Industrials Consumer High Technology Healthcare Materials Financials Real Estate Energy and Power Others
Source: ThomsonReuters, ChinaVenture and PwC analysis
PwC 12PE/VC and financial buyer deals
Fund-raising by traditional PE* declined with RMB funding dropping almost to zero
affected by banking regulatory changes, private money retreat and difficult A-share market
conditions; big US$ funds still have plenty dry powder, but some smaller or less successful
GPs have left the market
* These figures do not take into account available capital from alternative financial investors, e.g. corporate and SOE investment arms/captive-PEs, financial
institutions, HNWI-platforms, government-backed funds and sovereign investors
PE/VC fund raising for China investment
US$ billion No.
100 200
178
90 167 180
2.8
80 160
160
70 140
114
60 120
105
50 100
40 85.0 17.0 80
33.1 47.1
30 55 60
48
12.1
20 40
32.4 23.3
10 6.4 17.4 17.1 20
5.3 8.6
0 2.5 0
1H16 2H16 1H17 2H17 1H18 2H18 1H19
Renminbi Fund Size Non-renminbi Fund Size Fund Volume
Source: AVCJ and PwC analysis
PwC 14Investment activity fell steeply with 46% fewer transactions and a 33%
decrease in deal value to $87bn, albeit these numbers are still comparable
with 2017 and 1H16; given the economic and political uncertainties, buyers
are cautious and sellers are inclined to wait and see
PE deals overview
No. US$ billion
1,200 130.1 140
121.3
1,000 120
94.2 100
90.5
800 86.4 86.8
86.3 80
600
1118 1,069 60
400 851
649 657 667 40
580
200 20
0 0
1H16 2H16 1H17 2H17 1H18 2H18 1H19
Announced Deal Volume Announced Deal Value
Source: ThomsonReuters, ChinaVenture and PwC analysis
PwC 15Consumer, industrials and high technology related investment activities were
the most popular for financial buyers, accounting for more than 50% in terms
of value, in total; some specialist firms have emerged focused on healthcare,
5G, new-tech, etc.
PE deal value by industry sector
US$ billion
140
3.4
120 7.8 14.9
5.3
12.2
100 20.4
11.8
11.0 1.4 4.1 2.1
5.8 6.1 4.0 13.6 6.9
80 5.6 18.6
4.5 7.0 11.0 15.9 7.3
11.1 8.7 2.6 7.4
60 17.7 15.3 1.2
10.6 36.7 13.7
16.7 8.6 3.5 22.0
40 24.4 19.4 15.1
26.6 24.9
22.3 16.1 15.9
20 13.5 16.1
11.7 6.3
17.2 15.0 21.4 18.4
13.5 9.3 12.0
0
1H16 2H16 1H17 2H17 1H18 2H18 1H19
Consumer Industrials High Technology Financials Real Estate Others Healthcare Media and Entertainment
Source: ThomsonReuters, ChinaVenture and PwC analysis
PwC 16Venture capital activity remained stable in the first half, at a relatively high
level but the value of start-up funding halved as investors became more
discerning
Venture Capital Deals
No. US$ billion
3,000 4.7 5.0
4.5
2,500
4.0
3.4
3.5
2,000
3.0
2.3 2.3
1,500 2.5
1.6 2.0
1.5
1,000 1,893 1.2
1,796 1.5
1,599 1,614
1,137 1,201 1.0
500 1,738
0.5
0 -
1H16 2H16 1H17 2H17 1H18 2H18 1H19
Announced Deal Volume Announced Deal Value
Source: ThomsonReuters, ChinaVenture and PwC analysis
PwC 17The exit environment remained generally difficult, although there was some
increase in activity overall with some decent IPO conditions in the first part
of the period
No. PE/VC-backed deal exit volume by type
350
300 38
250
52
12
83
135 11
200
82
33 68
150 72
161
55
130
100 34
141 147
132
50 96
84
45 57
0
1H16 2H16 1H17 2H17 1H18 2H18 1H19
Trade sale IPO other
Source: ChinaVenture and PwC analysis
PwC 18Overall, A-share exits are trending at a fraction of earlier levels for PE-backed
IPOs
PE/VC-backed IPO exit volume by bourse
No.
180
150 6-
3 9
120 15 8
77
90 54
48
8
60 14 19
6
24 17
74
30 2
4 63 64 22
12 10
33
16 22 18
0
1H16 2H16 1H17 2H17 1H18 2H18 1H19
Shenzhen Shanghai A Hong Kong NYSE/ NASDAQ Others
Source: ChinaVenture and PwC analysis
PwC 19Mainland China outbound M&A
China outbound M&A almost halved in value with political and economic uncertainty
including the US-China trade-war resulting in large-sized cross-border M&A from Chinese
buyers almost drying up; there was, however, a more normal level of smaller sized
transactions with the slow down concentrated on the top-end of the market*
* There we only 3 outbound mega-deals against 13 in the prior period
China mainland outbound deals
No. US$ billion
500 473 140
447 429
450
131.0
* 377
426
120
400 315
312 100
350
300
80
250
74.3
60
200
60.5 59.0
150 51.6 40
100 40.2
26.8 20
50
0 0
1H16 2H16 1H17 2H17 1H18 2H18 1H19
Announced Deal Volume Announce Deal Value
Source: ThomsonReuters, ChinaVenture and PwC analysis
PwC 21All sub-sectors saw a decrease in values, and SOE activity also declined in
volume terms; the value on China outbound M&A by SOEs was the lowest of
any period over the last 10 years
China mainland outbound deals by investor type
No. US$ billion
500 70
450
95 60
400 100
104
350 134 50
300 134
40
250 139 114
316 30
200 293 259
150 260
208 20
156
100 154
10
50
62 54 66
35 22 42 32
- 0
1H16 2H16 1H17 2H17 1H18 2H18 1H19
SOE Announced Deal Volume POE Announced Deal Volume Financial buyer Announced Deal Volume
SOE Announced Deal Value POE Announced Deal Value Financial buyer Announced Deal Value
Source: ThomsonReuters, ChinaVenture and PwC analysis
PwC 22Sector activity was fairly broadly spread, with high technology investments
remaining in the number one position in volume terms*
* China’s big technology companies were active buyers in this sector
No. China mainland outbound deals by industry sector - volume
130
110
90 64
17
70 11
50 40
23
9 57 5
65 1 4
30 55 18
16
23 13 12 22 1 25
26 24
26 8 16
10 19 17
12 14 6 11
2 9 7 6 4 11 6 6 10
2 3 2 2 3 2 2 1
High Technology Industrials Financials Consumer Healthcare Media and Entertainment Materials Others
-10
2H18 SOE 2H18 POE 2H18 Financial buyers 1H19 SOE 1H19 POE 1H19 Financial buyers
Source: ThomsonReuters, ChinaVenture and PwC analysis
PwC 23Although the fall off of investment into the US has been in play for several
years already, in 1H19 there was a sharp decline in investment into Europe as
well, with Asia the only destination region more-or-less holding up at prior
norms
China mainland outbound deals by region - value
US$ billion
140 中国内地企业海外并购交易数量按投资目标地区分类
0.5
2.6
7.6
120 4.3
100
80 71.7
7.2 2.0
2.4
60 4.3
3.1 9.0 0.1
1.3
18.2 0.7 2.2
5.9 1.2 5.0
40 28.5 11.6 0.1 3.0
25.4
37.2 31.0 7.1 1.8
24.3
20 12.8 6.0
23.8 9.5 7.0
11.9 6.2
7.1 9.9 5.4 9.4 9.3
0
1H16 2H16 1H17 2H17 1H18 2H18 1H19
Asia North America Europe South America Oceania Africa Russia
Source: ThomsonReuters, ChinaVenture and PwC analysis
PwC 24The volume of outbound M&A transactions in the Belt & Road countries
continued to grow (although not all transactions were attributable directly to
the initiative and there was a fall in dollar amounts)
China outbound to B&R - value and volume
No. US$ billion
160 30.0
140 23.7 24.0
25.0
120
20.0
100
15.9
14.1
80 12.8 15.0
134 139
60 124
8.7 10.0
100 104
95
40 86
6.8 5.0
20
0 -
1H16 2H16 1H17 2H17 1H18 2H18 1H19
Announced deal volume Announced deal size
Source: ThomsonReuters, ChinaVenture and PwC analysis
PwC 25Key messages
Key messages – China M&A in the first half of 2019 (1 of 3)
Overall Domestic and Foreign-Inbound Strategic
• China M&A fell by 18% in the first six months of 2019 to • With outbound opportunities limited and the trade-war
US$264 billion – the largest single-period decline over in play, China’s renewed focus on its domestic economy
the last decade drove an 8% increase in the value of domestic strategic
• The decline in deal values was driven by steep falls in M&A with 28 mega-deals (compared to 18 in the prior six
outbound and PE deals, mitigated by a some rise in months) and deal volumes climbing 12%; foreign
domestic M&A inbound investments rose by 64% in volume but declined
by 29% in value
• Deal volumes actually increased in most sectors
(including outbound) indicating that there is still • Industrials M&A hit a record high, mainly because of 7
reasonable deal flow for smaller transactions, except for mega deals (around $16.4 billion in aggregate and
PE which fell sharply by 46% consumer sector M&A grew by 73%
• The total number of mega-deals (> US$1bn) remained • In volume terms, industrials, consumer, technology and
flat, with significantly fewer large outbound transactions healthcare were active sectors
offset by an increase in the number of mega-deals from
domestic strategic players
PwC 27Key messages – China M&A in the first half of 2019 (2 of 3)
PE/VC and financial buyer deals
• Fund-raising by traditional PE declined with Rmb funding dropping almost to zero affected by banking regulatory
changes, private money retreat and difficult A-share market conditions; big US$ funds still have plenty dry powder, but
some smaller or less successful GPs have left the market
• Investment activity fell steeply with 46% fewer transactions and a 33% decrease in deal value to $87bn, albeit these
numbers are still comparable with 2017 and 1H16; given the economic and political uncertainties, buyers are cautious and
sellers are inclined to wait and see
• Consumer, industrials and high technology related investment activities were the most popular for financial buyers,
accounting for more than 50% in terms of value, in total; some specialist firms have emerged focused on healthcare, 5G,
new-tech, etc.
• Venture capital activity remained stable in the first half, at a relatively high level but the value of start-up funding halved
as investors became more discerning
• The exit environment remained generally difficult, although there was some increase in activity overall with some decent
IPO conditions in the first part of the period
• But overall, A-share exits are trending at a fraction of earlier levels although Hong Kong in particular has been somewhat
active as a destination for PE-backed IPOs
PwC 28Key messages – China M&A in the first half of 2019 (3 of 3)
Mainland China Outbound
• China outbound M&A almost halved in value with political and economic uncertainty including the US-China trade-war
resulting in large-sized cross-border M&A from Chinese buyers almost drying up; there was, however, a more normal level
of smaller sized transactions with the slow down concentrated on the top-end of the market
• All sub-sectors saw a decrease in values, and SOE activity also declined in volume terms; the value on China outbound
M&A by SOEs was the lowest of any period over the last 10 years
• Sector activity was fairly broadly spread, with high technology investments remaining in the number one position in
volume terms
• Although the fall off of investment into the US has been in play for several years already, in 1H19 there was a sharp decline
in investment into Europe as well, with Asia the only destination region more-or-less holding up at prior norms
• The volume of outbound M&A transactions in the Belt & Road countries continued to grow (although not all transactions
were attributable directly to the initiative and there was a fall in dollar amounts)
PwC 29Outlook
Outlook for second half of 2019 (1 of 2)
Overall Domestic and Foreign-Inbound Strategic
• We previously predicted a soft first half of 2019, with • Domestic strategic M&A may be the one relative bright
some recovery in the second half as uncertainties cleared spot with China focused on stimulating its domestic
• However, the political and economic uncertainties have, economy
if anything, deteriorated and we now see soft M&A • Other domestic M&A drivers will include:
activity continuing into the second half of 2019 • Ongoing SOE reform
• De-leveraging and debt-restructuring
• Restructuring of smaller domestic banks
• Foreign investors are likely to remain cautious and we
do not expect any significant up-tick
PwC 31Outlook for second half of 2019 (2 of 2)
PE/VC and financial buyer deals Mainland China Outbound
• Subdued activity will continue • Subdued activity seen in the first half will continue as
• US$ funds likely to be most active the uncertainties have not cleared:
– Impact of ongoing US trade war (although incremental effect limited, as
• Abundant caution on buy-side and wait-and-see on deal values to US at low levels for last 2.5 years already)
sell side – Increased scrutiny of larger / sensitive / high profile deals in other
• Exit activity will be lower than the first half jurisdictions, too – including Europe – especially around technology or
other assets now regarded as strategic in nature
– Increasing uncertainties around the impact of Brexit on both the UK and
the rest of Europe
– Ongoing tight access to M&A financing and foreign currency
– Weakness of the Yuan (although this can drive activity in both directions –
less spending power vs desire to move currency offshore)
• If there are favourable developments on these factors, we
do anticipate some rebound in 2020 as the fundamental
drivers of Chinese outbound M&A remain in play
• But we think that political scrutiny of large cross-border
M&A will persist as nations protect strategic assets and
this will reduce the number of mega-deals
PwC 32Data compilation methodology and disclaimer
Statistics contained in this presentation and the press release may vary from those contained in previous press releases. There are three
reasons for this: ThomsonReuters and ChinaVenture historical data is constantly updated as deals are confirmed or disclosed;
PricewaterhouseCoopers has excluded certain transactions which are more in the nature of internal reorganisations than transfers of control;
and exchange rate data has been adjusted.
Included Deals Excluded Deals
• Acquisitions of private/public companies resulting in change of control • Property/real estate for individual properties
• Investments in private/public companies (involving at least 5% ownership) • Rumoured transactions
• Mergers • Options granted to acquire an additional stake when not 100% of the shares has
been acquired
• Buyouts/buy-ins (LBOs, MBOs, MBIs)
• Any purchase of brand rights
• Privatizations
• Land acquisitions
• Tender offers
• Equity placements in funds
• Spinoffs
• Stake purchases by mutual funds
• Split-off of a wholly-owned subsidiary when 100%
sold via IPO • Open market share buyback/retirement of stock unless part of a privatization
• Divestment of company, division or trading assets resulting in change of control at • Balance sheet restructuring or internal restructuring
parent level
• Investments in greenfield operations
• Reverse takeovers
• Going private transactions
• Re-capitalisation
• Joint Venture buyouts
• Joint Ventures
• Receivership or bankruptcy sales/auctions
• Tracking stock
PwC 33Thank you pwc.com © 2019 PwC. All rights reserved. Not for further distribution without the permission of PwC. “PwC” refers to the network of member firms of PricewaterhouseCoopers International Limited (PwCIL), or, as the context requires, individual member firms of the PwC network. Each member firm is a separate legal entity and does not act as agent of PwCIL or any other member firm. PwCIL does not provide any services to clients. PwCIL is not responsible or liable for the acts or omissions of any of its member firms nor can it control the exercise of their professional judgment or bind them in any way. No member firm is responsible or liable for the acts or omissions of any other member firm nor can it control the exercise of another member firm’s professional judgment or bind another member firm or PwCIL in any way.
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