On January 27, 2016, we posted a blog entry on China's economic outlook. At that time, newly released figures showed that China's GDP had fallen below the Chinese government's target of 7% in the final two quarters of 2015. Since then, the Chinese government released its 13th Five-Year plan, which lowered the economic growth target to 6.5% of GDP. Such a downturn in economic outlook raises the question, how has M&A activity been affected?
On April 25, 2016, PwC released a report that painted a rosy picture of China's M&A activity that minimized the doom and gloom of China's decreasing rate of economic growth and presented signs of encouragement for future investment opportunities in the country. This is, in fact, a continuation of the growth in M&A activity that China experienced throughout 2015, again, despite lower than expected rates of economic growth.
These are the key points of the report:
- There have been 115 outbound M&A deals in the first quarter of 2016
- These M&A deals had a total value of $82.6 billion – double the value of M&A deals in the first quarter of 2015
- Over half of all M&A deals were conducted by private companies
- New rules on overseas investments will facilitate future M&A activity
- Investments in the Asia region rose by 63% and investments in North America rose by 20% in 2015
- M&A activity is being used to diversify assets, update technology and improve management skills
This report shows that despite a highly publicized and government-affirmed economic slowdown, M&A deals proliferate unabated. However, it is important to keep in mind that such growth is mainly measured by the number of outbound M&A deals. According to an article in Asia Times, China's outbound M&A deals exceeded their inbound deals in the second half of 2015. If there is any impact from this economic downturn, perhaps it is that investors will continue to look outward from China to drive its growth.
The author would like to thank William Goldbloom, articling student, for his assistance in preparing this legal update.
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