All Eyes on M&A in China
Strong recent growth momentum in mainland China mergers and acquisitions (M&A) is only set to continue. The number of M&A deals jumped from 388 in 2003 to 824 in 2006, with deal value increasing similarly by almost 30% a year on average from US$29 billion to US$62 billion. Private equity deals have been the fastest growth area, up 75% per year, followed by domestic strategic deals (42%) and venture capital deals (28%).
While market players cite complicated regulatory approval process, poor enforcement of intellectual property rights, challenges in integration and staff retention as possible inhibitors to greater investment, M&A remains the fast track to access the world's fastest growing major economy.
It is also a key platform for global value chain integration, particularly in acquiring manufacturing capacities. There is a ready supply of profit-starved, underperforming state-owned enterprises and both tangible and intangible assets available across various industry sectors.
Some industries in China such as publishing, military manufacturing and broadcasting remain "untouchable" to foreign investment, but others such as telecommunications and some professional services are opening up in 2007 under WTO compliance, in addition to insurance and banking which opened to foreign investment in 2006.
Here is a snapshot of opportunities including these 'hot' sectors:
• Financial services: A hot spot for the past few years and momentum will continue with the opening of the insurance sector.
• Consumer & retail: High M&A deal value growth (+75% in 2006) driven by retail chain formation and entry of foreign retailers.
• Life science: Consolidation expected under WTO obligations, reducing the number manufacturers by a factor of four by 2010.
• Industrial: Manufacturing will continue to attract FDI and M&A as sourcing and procurement become integral to global profits.
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