Up to a third of Chinese outbound M&A deals by value blocked or withdrawn in 2016
- $40-$75bn worth of deals blocked or withdrawn in 2016
- Key trends include concerns over foreign ownership of businesses with national security or strategic importance
- Understanding these trends will help future deal success and momentum supporting Chinese firms and policy makers with outbound investment
- Report prepared for the 18th session of the China Development Forum, Beijing
Linklaters, the international law firm, highlights today in a new report that up to a third of Chinese outbound M&A deals by value announced during 2016 were blocked or withdrawn.
The report, ‘Getting over the line: clearing regulatory hurdles to outbound M&A’ identifies that approximately $220bn of Chinese outbound investment was announced in 2016 whilst over the same period between $40-$75bn worth of outbound deals were either blocked by regulatory authorities or withdrawn by investors.
Regulatory concerns often relate to the sector of the acquisition target with many of the delayed or withdrawn deals in sectors considered by the host government as being “critical” or “significant” to national security or national interest: in particular sectors such as energy infrastructure, high-end technology and electronics.
Fang Jian, National Managing Partner for Linklaters in China, commented: “The increasing regulatory scrutiny of Chinese outbound M&A reflects a threefold trend: an increase in deal volume, Chinese acquirers’ increased targeting of potentially sensitive sectors and a marked shift in the political mood and evolving policy concerns of regulators. To get deals over the line, companies and investors must understand the key country-by-country lessons from recent outbound M&A, and policy considerations should be informed by these lessons.”
The report was prepared by Linklaters for the China Development Forum in Beijing, China’s foremost platform for dialogue between its senior leadership and representatives from global businesses, at a time when international concern is rising over whether deals can get over the line in an environment of increased scrutiny.
The report highlights several key trends that are helpful as guidelines for the future success of those seeking to complete Chinese outbound M&A deals:
- National security implications of foreign ownership
- More intensive scrutiny of investment in regulated or strategically important sectors
- Impact on the interests of domestic nationals
- Lack of reciprocity over investment deals
In addition, for Chinese outbound M&A in particular, Chinese regulatory approval may also present a hurdle, especially for investments not seen as in line with the acquirer’s core business.
The report offers lessons and commentary relating to regulatory concerns around recent withdrawn or delayed M&A transactions, an understanding of which can be critical to both Chinese bidders and non-Chinese targets, as well as Chinese policymakers responsible for supporting outbound investment. Recent transactions include:
- The blocking of the acquisition of Ausgrid (Australia)
- Re-opening of the government review of Aixtron acquisition (Germany)
- Termination of the sale of Lumileds (US)
If you would like a copy of this report, or to find out more, please email us.