China to continue to drive M&A work in 2014

Lawyers have predicted that Australia will stay firmly within the sights of Chinese investors, as an active period of high value outbound M&A deals from China is predicted to continue this year

Australia will stay firmly within the sights of Chinese investors, as an active period of high value outbound M&A deals from China is predicted to continue this year.
Australia was second only to the United States for Chinese M&A activity in 2013, in terms of both the volume and value of deals. Australia was also the target country in two of the year’s ten highest value outbound deals for Chinese companies.

A report conducted by international firm Squire Sanders examining outbound M&A trends, predicts that M&A activity will defy reports of a slowdown in the wider Chinese economy and remain buoyant.

“Australia will see the trend of Chinese investment continuing, notwithstanding some hiccups caused by their economy as growth shrinks towards 7.5% annually,” Squire Sanders Australian managing partner John Poulsen said.

“The Chinese are becoming much more sophisticated. They do much better due diligence and now have a better understanding of projects,” he said.

Poulsen explained that Chinese companies had gained valuable knowledge from experiences such as the budget blowouts in CITIC Pacific’s Sino Iron project.
The report found that high value deals were particularly prominent in 2013, with 32 deals exceeding US$500m. 

The bustling year saw a total of 220 deals worth a total US$68.9bn, including China’s largest ever buy in the US – the purchase of pork producer Smithfield Foods – valuing US$6.9bn.   

A notable spread was detected in the choice of target market, with less clustering around particular geographies.

This includes a moderate uptick in activity into other Asian countries, pointing to a desire to expand regional footprints.

In June last year, the Hong Kong-based State Grid International Ltd purchased a 60% stake in Singapore Power International’s Australian assets, worth US$2.8bn,earning it a place in China’s top 10 outbound deals for the year.

In the same month, the China National Offshore Oil Corporation also bought an interest in the Queensland Curtis LNG project for US$1.9bn. 

Despite a slower rate of growth in China, deal-making is predicted to stay strong as the Chinese government and business community continue to encourage further economic development by investing in raw materials and upstream assets.  

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