How has China's economy developed and how have China's outbound investments evolved? We look back at 2023 and provide an outlook for 2024 from the perspective of Chinese companies.

How has China’s economy developed and how have China’s outbound investments evolved? The annual GDP of China in 2023 showed an increase of 5.2 percent compared with the previous year. 

The total volume of mergers and acquisitions worldwide fell to a ten-year low in 2023, amounting to roughly US$3 trillion. One of the main reasons for this is the differing views of buyers and sellers about pricing.

However, in 2023 China’s outbound M&As recorded growth – 

  • the annual volume of outbound direct investment (not including the financial sector) amounted to approximately US$130.1 billion, up 11.4 percent year on year. 
  • The total volume of overseas mergers and acquisitions announced by Chinese companies also increased in 2023 over the previous year (but with some decline in the number of mergers and acquisitions in 2023 compared to 2022). 

A positive signal from the Chinese government on mergers and acquisitions

In February 2024, the Listing Division of the Securities and Futures Commission (SFC) hosted an event to exchange the opinions and suggestions of some listed companies and securities firms to further optimise the regulatory mechanisms for mergers and acquisitions. During the seminar, the SFC proposed some future support initiatives:

  • improving the valuation of reorganisations and assisting buyers and sellers to determine the transaction price appropriately on the basis of market-based negotiations
  • categorised provisions (earn-out agreement / a so called performance commitment to be applied to capital injection transactions by a major shareholder based on future earnings expectations; no earn-out agreement is required for other types of transactions)
  • performance of fast-track reviews for the transactions of companies with high capitalisation; further optimisation of the ‘small and fast’ review procedure for transactions with smaller transaction values
  • support for mergers and acquisitions of high-quality target companies by business start-up and innovation companies. Such targets should be in the same industry or in upstream and downstream sectors, where the main business has a synergy effect. Improving innovation attributes for listed companies with ‘hard & core’ technology
  • support for the merger of listed companies (including those not under the same control) to further expand diversified exit channels.

A look at 2024 – the M&A market will pick up again

We are optimistic that the M&A market as a whole will pick up again in 2024. With domestic demand still weak, we expect Chinese companies to focus more on international markets (for example by means of outbound mergers and acquisitions), further accelerating globalisation. The overall improvement in the global economy and M&A situation will definitely provide a relatively favourable external environment for the development of M&A in China in the second half of 2024.

Areas where we expect potential growth in the outbound M&A market in China in 2024 include the technology sector, healthcare, life sciences and the energy sector (especially renewable energy).

For Chinese companies (buy-side, for example), the following aspects could be important in an outbound M&A transaction after closing:

  • focusing on sustainable business development and building a positive and harmonious brand image in the global market
  • establishing a team for integration/coordination of the transition period, consisting of both parties and, in individual cases, involving an external third party 
  • designing the organisational structure and staffing during the transition phase
  • structuring financial accounting and financial management during the transition
  • introducing IT systems/ERP integration
  • introducing cultural integration
  • planning medium-term integration of suppliers of both parties
  • combining/evaluating/diagnosing/optimising the existing customer resources of both parties and aligning them with future business objectives.

Source: Intralinks, China’s National Bureau of Statistics (NBS), China Securities Regulatory Commission (CSRC) 

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