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Private Equity, Venture Capital: China's M&A market slows in 2016 with cross-border deals a bright spot

Private Equity, Venture Capital: China's M&A market slows in 2016 with cross-border deals a bright spot

China's merger and acquisition market slows in 2016 following a record setting 2015, cooled by new policies on state-owned enterprises and tighter regulatory oversight on merger and acquisition deals. The exception to the trend was cross-border M&A, which look set to a record year in 2016.

There were 6,642 announced M&A deals in China with disclosed aggregate transaction value of US$540.6 billion in 2016, down 31% and 31.5% year-on-year respectively, according to data released by Chinese deal tracking firm ChinaVenture.

A total of 4,010 M&A deals with aggregate transaction value of US$253 billion were actually completed in 2016, down 23% and 26% compared to 2015, respectively.

Due to the weaker M&A market and implementation of new policies restricting back-door listings, there was also a steep decline in reverse merger deals that allow private companies to acquire a publicly listed companies to realize an initial public offering. Only 24 announced reverse merger deals were recorded last year, with US$34.5 billion in aggregate deal value, down 55.6% and 12% year-on-year.

Cross-border M&A is a bright spot, however, with US$200 billion in aggregate deal value recorded during the first ten months of 2016, far exceeding 2015's full-year US$103 billion figure. Cross-border deals are getting larger as well, with nearly 40 transactions carrying a price tag of over US$10 billion last year.

For the full year, a total of 285 cross-border M&A transactions worth US$47.1 billion were recorded in 2016, taking 7% and 19% of the country's total M&A market, respectively.

The Internet, IT and manufacturing sectors were the three most active industries, with 529, 515 and 487 deals completed last year. They took 14%, 13.8% and 13% of the total deal universe in terms of deal volume.

But in terms of actual dollar value of transactions, financial service, energy and mining, manufacturing was the most actively, with US$39 billion, US$25 billion and US$18 billion aggregate deal value recorded for the year of 2016 respectively.

Industry consolidation among state-owned enterprises remains a strong driver of domestic Chinese M&A. China Petroleum Capital’s US$11.3 billion spin-off to Jinan Diesel Engine and China Yangtze Power Co., Ltd's US$11.5 billion acquisition of Chuanyun Electrical & Plumbing are the biggest ongoing and completed deals respectively.