Chinese corporates including insurance firms have already smashed last year’s record in outbound deals, and some experts believe that the overseas shopping spree is not ending anytime soon.
Companies in the Asian powerhouse have made US$157 billion worth of M&A deals so far this year, surpassing the record US$109bn in 2015, Bloomberg
Jason Rynbeck, head of Asia-Pacific mergers and acquisitions at HSBC Holdings Plc, told the news agency that the pace of Chinese purchases abroad may slow down in the coming months.
In the long run, however, Chinese firms will play an even bigger role in global M&A transactions, Rynbeck said.
“Chinese corporate M&A appetite has migrated from being concentrated on the natural resources industry into the current ‘game-on’ across every sector,” Bloomberg
quoted Rynbeck as saying. “Chinese companies are using M&A as part of a broad corporate strategy to expand.”
According to Bloomberg
, Chinese companies are snapping up businesses abroad because there are less investment opportunities in China due to its weakening economy. In 2015, the country posted its slowest growth in 25 years, limiting domestic investment prospects.
Investing abroad has also become more profitable for Chinese firms since the cost of acquiring local companies has been pushed up by the 38% increase in the benchmark Shanghai Composite Index over the past two years.
“You have pretty high valuations in China right now,” Patrick Chovanec, the chief strategist at Silvercrest Asset Management in New York, told Bloomberg
. “It is just a function of where the market is. If you are going to make an acquisition in China, you are dealing with a high valuation bar.”
China’s central government has also encouraged outbound deals, with Premier Li Keqiang urging Chinese corporates to go out and invest in overseas assets. The firms, however, are not carelessly pouring their money into other countries.
“They have become more sophisticated,” Siva Yam, president of the US-China Chamber of Commerce in Chicago, told Bloomberg
. “They buy companies with a brand or distribution channel, and lots of them are profitable.”
Over the past two years, one of the most prominent Chinese overseas acquirers is an industry player – Anbang Insurance. The insurer bought the iconic Waldorf Astoria hotel in New York and got into a US$14bn bidding war for Starwood Hotels and Resorts Worldwide.
Earlier this week, Anbang dismissed reports
that it was planning to take control of InterContinental Hotels Group.
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