Deloitte: Chinese hungry for European firm acquisitions

05 February 2015 Consultancy.uk

Chinese firms are snapping up European firms, acquiring 79 in 2014 with an average value of £249 million. European investment in Chinese companies, in comparison, involved 54 deals valued at £116 million. Chinese firms are particularly looking for European firms that offer technology to bolster their industrial and automotive industries.

Chinese M&A deals for European companies are booming according to Deloitte, outstripping European deals in terms of both volume and value. In 2014 Chinese companies and financial investors announced 79 deals in Europe, in contrast to the 54 deals made by European companies for Chinese acquisitions. It is not merely a difference in volume, in 2014 the average deal value was found to be more than twice the size for Chinese acquisitions, amounting to £249 million versus the £116 million for European investors in China. At the top end of deals the difference really makes itself known, the five biggest deals from China to Europe are £6.6 billion, whereas the value of the five biggest deals the other way, the total amounted to £1.4 billion.

Deloitte - Outbound Chinese M&A

Of the European destinations to see Chinese takeovers, Germany was the most popular with 16 deals – with deals mostly in automotive and industrial sectors. The UK came second on the list, with a total of 12, mainly consumer, businesses snapped up. These include Sanpower’s £480 million takeover of the House of Fraser department store and Hony Capital’s £900 million acquisition of high street restaurant chain Pizza Express. Similarly to previous years (see above), Western Europe remains the most popular destination for outbound Chinese M&A.

Chinese firms are particularly interested in buy up technology rich firms to make them more competitive, with 31 of the 79 deals being in the industrial and automotive industry and six deals in the energy industry (with solar a point of interest there).

Graham Matthews, lead China M&A partner for Deloitte, comments that: “In the space of a few years the tectonic plates between Europe and China have shifted, with Chinese deal activity surging in 2014. No European company or private equity fund has ever done a deal larger than £1 billion in China, but last year alone there were five Chinese acquisitions in Europe of around this size.”

Graham Matthews - Deloitte

Matthews adds: “We are seeing many more repeat buyers and re-invigorated state-owned enterprises undertaking many of the larger deals. However, private enterprises are doing the majority (45 of the 79 deals) by volume in Europe. Chinese private equity (PE) is also becoming prominent in outbound deals to Europe, completing nine investments in 2014, and already finding larger deals than any foreign PE fund has ever found in China.  Not only are Chinese PE funds becoming active buyers of European businesses, but non-Chinese financial sponsors are also co-investing with Chinese companies and financial investors to do deals in Europe.”

Looking ahead, the corporate finance specialist expects the Chinese to maintain, if not expand, their edge in cross-border M&A flow. “As China’s capital markets open up in 2015 with a predicted wave of IPOs, and the Eurozone economy remaining challenged, cross-border M&A flows are predicted to remain increasingly in favour of China.”

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