PwC M&A 2015 Review and 2016 Outlook PwC M&A rep… · 2015 5 Source: ThomsonReuters, ChinaVenture...

PwC M&A 2015 Review and2016 Outlook 26 January 2016

David Brown, Transaction Services Leader, PwC China and Hong KongChristopher Chan, Advisory Partner, PwC China and Hong Kong

PwC

Foreword – explanation of data shown in this presentation (1 of 2)

2

• The data presented is based on information compiled by ThomsonReuters, ChinaVenture and PwC analysis unless stated otherwise

• Thomson Reuters and ChinaVenture record announced deals. Some announced deals will not go on to complete

• The deal volume figures presented in this report refer to the number of deals announced, whether or not a value is disclosed for the deal

• The deal value figures presented in this report refers only to those deals where a value has been disclosed (referred to in this presentation as “disclosed value”)

• “Domestic” means China including Hong Kong and Macau

• “Outbound” relates to mainland China company acquisitions abroad

• “Inbound” relates to overseas company acquisitions of Domestic companies，

• “Private Equity deals” or “PE deals” refer to financial buyer deals with deal value over US$10mn and/or with undisclosed deal value, mainly invested by private equity GPs but also including direct investments by financial institutions and conglomerates which are of the nature of private equity type investing

PwC

Foreword – explanation of data shown in this presentation (2 of 2)

3

• “VC deals” refer to financial buyer deals with deal value less than US$10mn and/or with undisclosed deal, but invested by venture capital funds

• “Strategic buyer” refers to corporate buyers (as opposed to financial buyers) that acquire companies with the objective of integrating the acquisition in their existing business

• “Financial buyer” refers to investors that acquire companies with the objective of realizing a return on their investment by selling the business at a profit at a future date and mainly, but not entirely, comprise PE and VC funds

• In order to exclude foreign exchange impact, deal values from 2008 to 2012 were adjusted based on 2015 average Rmb/US$ exchange rate

PwC

Overview

PwC

Volume Value Volume Value Volume Value Volume Value Volume Value

Strategic buyers (US$bn) (US$bn) (US$bn) (US$bn) (US$bn)

Domestic 3,262 1 1 8.0 2 ,667 88.2 2 ,7 04 1 45.8 4,1 80 238.0 4,81 9 445.3 15% 87%

Foreign 482 1 7 .3 286 9.1 27 5 1 4.9 354 23 .4 31 8 1 4.3 -10% -39%

Total Strategic buyers 3,744 135.3 2,953 97.3 2,979 160.6 4,534 261.4 5,137 459.6 13% 76%

Financial buyers

Priv ate Equity 529 45.4 358 45.4 392 35.4 593 7 1 .5 1 ,062 1 92.1 79% 169%

VC 903 1 .8 486 1 .0 7 38 0.8 1 ,334 1 .3 2 ,7 35 4.4 105% 227%

Total Financial buyers 1,432 47.3 844 46.4 1,130 36.3 1,927 72.9 3,797 196.5 97% 170%

China mainland Outbound

SOE 40 23 .1 41 37 .8 57 38.5 7 8 27 .4 80 29.1 3% 6%

POE 1 39 6.0 1 24 1 0.6 1 1 8 1 1 .1 1 45 1 4.3 207 22.2 43% 55%

Financial buy ers 27 1 3 .3 26 1 1 .9 25 1 .1 49 1 4.0 95 1 6.1 94% 15%

Total China mainland Outbound 206 42.5 191 60.3 200 50.6 272 55.7 382 67.4 40% 21%

HK Outbound 183 8.3 166 12.8 164 9.4 214 21.8 199 26.3 -7% 21%

Total 5,538 220.0 4,128 204.9 4,448 255.9 6,898 397.8 9,420 733.7 37% 84%

2014201320122011

% Diff

volume

2015 vs.

2014

% Diff

value

2015 vs.

2014

2015

5

Source: ThomsonReuters, ChinaVenture and PwC analysis

Total deal volume and value, from 2011 to 2015

2015 was a record year for China M&A with deal volumes up 37%

and values up 84% at US$734 billion

*

*

* Some financial buyer backed outbound deals are also recorded in private equity deals, but they are not double counted in the total deal volume anddeal value in the table above

PwC

3,262 2,667 2,704

4,180 4,819

529

358 392

593

1,062

206

191 200

272

382

482

286 275

354

318

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

2011 2012 2013 2014 2015

Deal volume by main category (excludes VC)

Domestic Strategic Buyers Private Equity Deals China Mainland Outbound Foreign Strategic Buyers

Domestic, PE and Outbound M&A activity all grew strongly …

6


No.

* 95 financial buyer backed outbound deals are also recorded in private equity deals

*

*

PwC

118.0 88.2 145.8

238.0

445.3

45.4 45.4

35.4

71.5

192.1

42.5 60.3

50.6

55.7

67.4

17.3 9.1

14.9

23.4

14.3

0

100

200

300

400

500

600

700

800

2011 2012 2013 2014 2015

Deal value by main category (excludes VC)

Domestic Strategic Buyers Private Equity Deals China Mainland Outbound Foreign Strategic Buyers

… and, with more than 114 deals over US$1 billion (a record) deal values advanced by 84%

7


* 95 financial buyer backed outbound deals are also recorded in private equity deals

*

*

US$ billion

PwC

Strategic buyers

8

PwC

Domestic strategic M&A grew strongly driven by economic transformation, some (although still nascent) sector consolidation, restructuring and inorganic growth strategies as the domestic M&A market matures; on the other hand, foreign inbound M&A appears to have reached a broadly steady state, declining somewhat year on year

482 286 275 354 318

3,262

2,667 2,704

4,180 4,819

17.3 9.1 14.9 23.4 14.3

118.0

88.2

145.8

238.0

445.3

0

50

100

150

200

250

300

350

400

450

500

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

2011 2012 2013 2014 2015

Strategic buyer deals, from 2011 to 2015

Announced Deal Volume Inbound Announced Deal Volume DomesticAnnounced Deal Value Inbound Announced Deal Value Domestic

No. US$ billion

9


PwC

Technology and FS were particularly hot sectors in 2015 due mainly to higher growth expectations for the tech sector, some industry consolidation in tech, and significant pace of development and capital raising for fintech and payments businesses in China

12.3 16.2 21.1 36.4 77.4

16.1 13.8 12.8 33.9

71.2

31.1 16.5 39.0

60.6

52.3

18.1 10.6

20.5

30.3

58.0

9.5 6.3

12.4

17.0

51.8

22.116.7

20.1

26.6

44.0

22.2

12.5

29.5

43.3

42.0

4.8

5.3

6.4

13.5

32.1

11.1

8.6

18.9

19.7

30.8

0

50

100

150

200

250

300

350

400

450

500

2011 2012 2013 2014 2015

Strategic buyer deal value by industry sector

High Technology Financial Services Others Industrials Energy and Power

Materials Real Estate Healthcare Comsumer related

US$ billion

10


PwC

PE/VC and financial buyer deals

11

PwC

PE and VC fundraising remained at healthy levels; the capital available for financial investing is considerably greater than implied by these numbers because of the direct investment activities of insurers (and other financial institutions); government and

industry funds; SOE funds; private-company funds; and HNWI vehicles

17.221.1 19.4

29.2 29.2

30.0 20.4

13.0

21.2 19.8

277

123130

118

137

0

50

100

150

200

250

300

0.0

10.0

20.0

30.0

40.0

50.0

60.0

2011 2012 2013 2014 2015

PE/VC fund raising for China investment

Non Rmb fund size Rmb fund size Fund volume

No.US$ billion

12


PwC

With so many financial investors active, the number and value of “PE” deals (which includes other categories of financial investors) increased 79% (by volume) and 169% (by value); domestic investors were especially active and it was a generally tougher environment for foreign PEs; there were 27 PE deals in excess of US$1 billion (another record) as the trend towards larger deal sizes continues

529

358 392

593

1,062

45.445.4 35.4

71.5

192.1

0

50

100

150

200

250

0

100

200

300

400

500

600

700

800

900

1,000

1,100

2011 2012 2013 2014 2015

Private Equity deals, from 2011 to 2015

Announced Deal Volume Announced Deal Value

No. US$ billion

13


PwC

The VC industry (and tech investing generally) was especially hot with investors chasing tech opportunities in China in search of perceived high growth opportunities as the general economy slowed; early through late stage funding rounds were closed, with some larger deals (recorded in our “PE” numbers) coming from consolidation in the tech sector

14


903

486 738

1,334

2,735

0

500

1,000

1,500

2,000

2,500

3,000

2011 2012 2013 2014 2015

Venture Capital deals volume, from 2011 to 2015

Announced Deal Volume

No.

PwC

The outbound trend for PEs and financial buyers is now well established, almost doubling in number in 2015 from the previous high; these investors are mainly seeking overseas assets with “a China angle”

27 26 25

49

95

13.3

11.9

1.1

14.0

16.1

-

10

20

30

40

50

60

70

80

90

100

2011 2012 2013 2014 2015

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

China mainland PE/Financial buyer backed outbound deals

Announced deal volume Announced deal size

15


No. US$ billion

PwC

Exit activity was lower than expected, due mainly to turbulence in the equity capital markets

172

98

35

114 119

49

37

59

81 64

60

81

87

62

25

8

13

16

10

11

0

50

100

150

200

250

300

350

2011 2012 2013 2014 2015

PE/VC backed deal exit volume by type

IPO Trade sale Open market sale Share buyback Written off

16

No.

Source: AVCJ and PwC analysis

PwC

Domestic (A-Share) IPOs continue to be the preferred exit route, with both HK and especially US markets less popular for PE-backed issuers seeking to maximize valuation multiples

17

No.

Source: AVCJ and PwC analysis

106

70

24 38

60

19

11

45

37

26

11

5

17

19

12

2

6

13

1

9

4

-

1 2

0

20

40

60

80

100

120

140

160

180

200

2011 2012 2013 2014 2015

PE/VC backed deal exit volume by bourse

Shenzhen Shanghai A Hong Kong NYSE/ NASDAQ Others

PwC

The cumulative overhang of investments to exits remains a problem for the industry, even after taking into account a normal population of failed deals and the impact of longer term investors

18

Source: ThomsonReuters, ChinaVenture, AVCJ and PwC analysis

No.

694 7121,011 903

473738

1,334

2,735

369 264

437 529

358

392

593

1,063

111 182 318 289 229 197 260 2190

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

2008 2009 2010 2011 2012 2013 2014 2015

PE/VC deal volume vs. No. of exits

VC deals PE deals Exit

PwC

Mainland China outbound

19

PwC

China outbound activity grew 40% (by volume) and 21% (by value) to reach new record highs

206 191 200

272

382

42.5

60.3

50.6

55.7

67.4

0

10

20

30

40

50

60

70

80

0

50

100

150

200

250

300

350

400

450

2011 2012 2013 2014 2,015

China mainland outbound deals, from 2011 to 2015

Announced Deal Volume Announce Deal Value

No. US$ billion

20


PwC

Privately owned enterprises continue to lead the charge; financial buyers and PEs were also very active, but SOE participation continued to be somewhat subdued affected by domestic priorities in the state sector

21


40 40 5778 80

139 125118

145

20727

2625

49

9529.9

36.8 38.8

27.3 29.1

6.4

19.9

11.2

14.4

22.2

8.410.3

1.1

14.016.1

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

45.0

0

50

100

150

200

250

300

350

400

450

2011 2012 2013 2014 2015

SOE Announced Deal Volume POE Announced Deal Volume Financial buyers Volume

SOE Announced Deal Value POE Announced Deal Value Financial buyer Deal Value

China mainland outbound deals, from 2011 to 2015No.US$ billion

PwC

China’s overseas M&A tends to pursue technologies, brands and know-how to bring back to the China market; implementing inorganic growth strategies; and – although still a nascent trend – building geographically diversified investment portfolios

22

15 14 12 11 9 8 11

24

38

9

24

12

43

18

39

3

14

4

13

2

37

7

15

1019

146 10

5 212

13

21

1324

1230

8

241

6

2

7

3

17

6

7

0

10

20

30

40

50

60

70

80

90

100

Raw Materials Industrials Energy and Power Consumer related Financial Services High Technology Healthcare Others

2015 SOE 2015 POE 2015 Financial buyers 2014 SOE 2014 POE 2014 Financial buyers

China mainland outbound deals by industry sector

–By number of deals, 2015 vs. 2014


No.

PwC

Accordingly, developed economies are favoured destinations; Chinese companies have also focused on Asian opportunities, in part in response to the One Belt One Road initiative

Outbound M&A deal volume by region of destination 2015 vs. 2014

Source: ThomsonReuters and PwC analysis

23

107

North America

113 110

South America

Europe

Africa

Asia

Oceania

7 299

64

7

8295

6 17

6

Russia

20142015

1

PwC

Key messages

24

PwC

Key messages – China M&A in 2015 (1 of 3)

25

Overall

• 2015 was a record year for China M&A with deal volumes up 37% and values up 84% at US$734 billion

• Domestic, PE and Outbound M&A activity all grew strongly and, with more than 114 deals over US$1 billion (a record) deal values advanced by 84%

Domestic and Foreign-Inbound Strategic

• Domestic strategic M&A grew strongly driven by economic transformation, some (although still nascent) sector consolidation, restructuring and inorganic growth strategies as the domestic M&A market matures; on the other hand, foreign inbound M&A appears to have reached a broadly steady state, declining somewhat year on year

• Technology and FS were particularly hot sectors in 2015 due mainly to higher growth expectations for the tech sector, some industry consolidation in tech, and significant pace of development and capital raising for fintechand payments businesses in China

PwC


26

Private Equity

• PE and VC fundraising remained at healthy levels; the capital available for financial investing is considerably greater than implied by these numbers because of the direct investment activities of insurers (and other financial institutions); government and industry funds; SOE funds; private-

company funds; and HNWI vehicles

• With so many financial investors active, the number and value of “PE” deals (which includes other categories of financial investors) increased 79% (by volume) and 169% (by value); domestic investors were especially active and it was a generally tougher environment for foreign PEs; there were 27 PE deals in excess of US$1 billion (another record) as the trend towards larger deal sizes continues

• The VC industry (and tech investing generally) was especially hot with investors chasing tech opportunities in China in search of perceived high growth opportunities as the general economy slowed; early through late stage funding rounds were closed, with some larger deals (recorded in our “PE” numbers) coming from consolidation in the tech sector

• The outbound trend for PEs and financial buyers is now well established, almost doubling in number in 2015 from the previous high; these investors are mainly seeking overseas assets with “a China angle”

• Exit activity was lower than expected, due mainly to turbulence in the equity capital markets

PwC


27

Private Equity

• Domestic (A-Share) IPOs continue to be the preferred exit route, with both HK and especially US markets less popular for PE-backed issuers seeking to maximize valuation multiples

• The cumulative overhang of investments to exits remains a problem for the industry, even after taking into account a normal population of failed deals and the impact of longer term investors

PwC


28

China Outbound

• China outbound activity grew 40% (by volume) and 21% (by value) to reach new record highs

• Privately owned enterprises continue to lead the charge; financial buyers and PEs were also very active, but SOE participation continued to be somewhat subdued affected by domestic priorities in the state sector

• China’s overseas M&A tends to pursue technologies, brands and know-how to bring back to the China market; implementing inorganic growth strategies; and – although still a nascent trend –building geographically diversified investment portfolios

• Accordingly, developed economies are favoured destinations; Chinese companies have also focused on Asian opportunities, in part in response to the One Belt One Road initiative

PwC

Outlook

29

PwC

Outlook for 2016 (1 of 6)

Overall

• We think that the rate of China M&A activity will continue to grow at double-digit pace, led by domestic strategic and outbound activity, as well as robust financial-buyer activity (even if not necessarily mainstream PE)

Key industry sectors

• Technology deals will remain hot, driven by:

- Government support for technology and innovation as enablers of the transformation of China’s economy

- Investor expectations of high growth

- Active private equity and VC involvement in the sector

- A vibrant start-up environment

- Sector consolidation and M&A growth strategies led by industry leaders such as Baidu, Alibaba and Tencent

30

PwC


Key industry sectors (cont’d)

• Activity in Financial Services will also be healthy, driven by:

- Strong outbound activity, for example

◦ Chinese banks expanding abroad to support China’s overseas infrastructure (including One Belt One Road), trade flows and the increasingly global activities of their domestic customers

◦ Insurers, fintech and payments companies to acquire financial product manufacturing capability and brands

◦ Domestic payment companies stepping up their international expansion to capture China inbound and outbound cashflow businesses

- Ongoing restructuring of the domestic FS market, in particular to serve liquidity needs in retail and SME markets

31

PwC


Domestic Strategic

• Longer term drivers of growth remain in play, including: transformation of the economy, sector consolidation and restructuring; SOE reforms; and inorganic growth strategies – we expect that these factors will override slowing economic condition and volatile equity capital markets facilitating continuing double-digit growth

Foreign Inbound Strategic

• Foreign inbound M&A will remain at or around levels seen over the last few years, with the uncertainties in the global markets somewhat dampening the enthusiasm for inbound investment, although the continuing higher levels of growth in China still attract attention from overseas buyers

• Joint venture activity will remain strong and the preferred route for many overseas investors with CEOs continuing to cite this as a good way to operate in the China market with the right Chinese partner

• Existing foreign investors are restructuring their operations providing some opportunities for carve out transactions and disposals of non-core assets

32

PwC


China Outbound

• China outbound M&A will continue to grow by more than 20% in 2016

• There is a sizeable cadre of increasingly experienced mainland Chinese acquirers of overseas assets and they will remain active

• Longer term drivers such as going-out to bring-back, and overseas M&A as a source of inorganic growth, remain in play, and the One Belt One Road initiative is also driving some outbound M&A activity

• We expect to see ongoing growth in the number of financial (not only strategic) investments, most of which will be focused on acquiring foreign companies with a “China angle” in their strategic plans; in addition, some Chinese investors are also starting to invest overseas in order to build geographically diversified portfolios

• Over time, outbound M&A will grow very strongly to support the emergence of true Chinese MNCs

33

PwC


Private equity (and other financial investors)

• Traditional PE faces increasing competition from other classes of direct financial investors including insurers (and other financial institutions); government and industry funds; SOE funds; private-company funds; and HNWI vehicles

• Despite ongoing disruption in the domestic equity capital markets, A-share related exits are often preferred due to better multiples, and this tends to favour domestic PEs over their foreign counterparts

• A-Share turbulence could dampen PE investment activity but can also have a positive effect as SMEs turn to private equity as an alternative source of equity capital

• We expect outbound PE and financial buyer investment to continue to grow

• We do expect exits to increase especially if markets stabilise, and also with more secondary (PE to PE) activity

• Longer term drivers include: a cashed-up PE industry; greater participation by domestic PE investors and “non-traditional” direct investors; general demand for equity capital in China; more buy-out opportunities; PE participation in SOE reforms; and a higher level of M&A exit activity to clear backlogs - all remain in play.

• Overall, full-year 2016 will likely be a record year for financial M&A, albeit not necessarily for traditional PE taken alone.

34

PwC


Venture capital

• The technology space will continue to be a hot sector (see earlier comments)

• However, we think VC activity – whilst remaining strong in absolute terms – will decline slightly from the super-high levels seen in 2015 as valuations become more challenging and investors somewhat more circumspect

35

PwC

Data compilation methodology and disclaimer

Statistics contained in this presentation and the press release may vary from those contained in previous press releases. There are three reasons for this: ThomsonReuters and ChinaVenture historical data is constantly updated as deals are confirmed or disclosed; PricewaterhouseCoopers has excluded certain transactions which are more in the nature of internal reorganisations than transfers of control; and exchange rate data has been adjusted.

• Acquisitions of private/public companies resulting in change of control

• Investments in private/public companies (involving at least 5% ownership)

• Mergers

• Buyouts/buyins (LBOs, MBOs, MBIs)

• Privatisations

• Tender offers

• Spinoffs

• Splitoff of a wholly-owned subsidiary when 100% sold via IPO

• Divestment of company, division or trading assets resulting in change of control at parent level

• Reverse takeovers

• Re-capitalisation

• Joint Venture buyouts

• Joint Ventures

• Receivership or bankruptcy sales/auctions

• Tracking stock

• Property/real estate for individual properties

• Rumoured transactions

• Options granted to acquire an additional stake when not 100% of the shares has been acquired

• Any purchase of brand rights

• Land acquisitions

• Equity placements in funds

• Stake purchases by mutual funds

• Open market share buyback/retirement of stock unless part of a privatisation

• Balance sheet restructuring or internal restructuring

• Investments in greenfield operations

• Going private transactions

Included Deals Excluded Deals

36

Thank you

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PwC M&A 2015 Review and 2016 Outlook PwC M&A rep… · 2015 5 Source: ThomsonReuters, ChinaVenture...

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