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‘Global phenomenon’: Baker pinpoints drop in outbound Chinese M&A
Baker McKenzie, in partnership with Rhodium Group, has uncovered new research which provides pivotal insight into how M&A transactions have been impacted in the first five months of 2020.
Emma Musgrave
The research found that the number of newly announced transactions dropped from around 90 per month in the 2016-18 peak period to barely 30 per month between January and May 2020. Compared to the same period in 2019, new outbound deal-making by Chinese firms is down 71 per cent in volume and 88 per cent in value terms.
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“The sharp drop in newly announced outbound Chinese M&A is a global phenomenon,” the research noted.
“So far this year, all companies in China combined have announced around the same amount on overseas acquisitions as HNA Group did in 2016 in one transaction – its purchase of a 25 per cent stake in Hilton Worldwide Holdings (US$6.5 billion). While Asia witnessed a 65 per cent drop in value, announced takeovers in Europe fell 93 per cent from US$19.5 billion to US$1.4 billion in Europe, and a 89 per cent fall in North America, from USD$6 billion to US$0.7 billion.”
“In comparison to the boom years China’s outbound investors are simply not in the same position to ramp up overseas buying at the moment,” said Thomas Gilles, chair of the EMEA-China Group of Baker McKenzie.
“Chinese companies with global ambitions face a very different environment today, due to the combination of heavier debt loads, tighter domestic liquidity conditions, Beijing’s controls on outbound capital flows and an increase in trade and investment restrictions abroad.”
The research also highlighted the stark rise on restrictions despite the fall in demand being felt.
“Governments have been increasingly placing restrictions on foreign investment, despite the G20 commitment to keep FDI and trade going through the COVID-19 pandemic. To add to new EU rules in 2019 and US rules in 2020, the European Union released in March 2020 updated guidance for FDI screening urging member states to support European public security by protecting ‘companies and critical assets’ in health-related industries from foreign buyout,” the research explained.
“Many countries have put the brakes on FDI. Australia announced temporary measures to drop investment review thresholds to zero for all economic sectors as of March 29, 2020. Similar measures followed in France, which reduced investment screening threshold to 25 per cent, and Spain, which imposed a 10 per cent threshold on non-European FDI flows and released guidelines to protect public security, order and health, while Italy also temporarily expanded its screening regime.
“In more permanent changes, Germany extended its foreign investment review regime to cover the health care sector, while Sweden, New Zealand and Poland all announced plans for screening legislation. Meanwhile, after years of deliberation the UK is also soon to propose a new screening regime via a long-delayed National Security and Investment Bill.”
