Chinese PE deals dominate Asian investment in Europe, US

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China-based funds invested $7.4 billion via cross-border deals into Europe and North America, exceeding the $5.8 billion invested in 2015, in the first half of 2016, according to a MergerMarket report.

This positions China as the leading Asian source of private equity (PE) investment for both these regions.

Asian outbound investments hit a record transaction value of $9.8 billion in 2015 and are continuing on this upward trend, posting $8.7 billion worth of such investments in H1 2016.

From 2011 to H1 2016, China-based private equity engaged in 13 PE investments worth $1.6 billion, 23 PE buyouts worth $15.7 billion, and 78 venture capital investments worth $1.9 billion.

Of these deals, healthcare and medical transactions have been the most visible, with 25 deals worth $817 million from 2011 to H1 2016. Information technology and technology-related deals also played heavily in outbound private equity activity, with 23 deals worth $1.2 billion from 2011-H1 2016.

This comes as China-based PE investment firms continue to grow in size, number and sophistication as they pay increased attention to overseas acquisition targets.

With decelerating growth in the Chinese market, there is now intensified impetus to diversify overseas as a currency hedge and to gain more direct exposure to the international macro trends.

Asian PE investments. Credit: Mergermarkets GroupChinese money, European deals

When it comes to European deal flow, Chinese PE firms dominate by deal volume, but the largest deals are being executed by Chinese state-owned enterprises, according to one report by the Brookings Institution.

Citing a report by law firm Baker & McKenzie and consultancy Rhodium Group, Brookings notes: “The total stock of Chinese investment in Europe increased almost ten-fold from $6 billion in 2010 to $55 billion in 2014. In 2015 alone, Chinese OFDI in Europe increased by 44 percent (with deals such as Italian tire manufacturer Pirelli’s $7.7 billion takeover by ChemChina). Total flow of $23 billion exceeded China’s investments in the US, which were $17 billion in the same year.”

Another deal of note is the $43 billion ChemChina takeover of Syngenta, which has cleared US approval but still has to receive approval from EU regulators.

China is investing heavily in Europe for a number of reasons though this has raised concerns. A South China Morning Post article estimates that new Chinese overseas investment will exceed that of all other players, rising to $20 trillion by 2020.

While China is already the largest investor in a many developing economies, the bulk of new investment as of late has targeted developed Western countries, coming as it does from an economy where many enterprises have had easy access to capital (i.e. bank loans) to finance their purchases. This is coupled with an appetite for a diverse portfolio of assets, acquire technology and expand business operations abroad.

However, growing toxic corporate debt in China is likely to impact Chinese PE activity significantly in the future, but could create opportunities for those PE firms and funds that specialise in distressed assets.

Chinese PE target sectors

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