China’s M&As and IPOs

Following strong performance over recent years, China’s M & As will continue to surge in 2011, accounting for 8-9% of global M & As, said the head of JPMorgan’s M & A unit.  Last year, China’s inbound and outbound M & A deals totalled US$236 billion out of the world sum of US$2.8 trillion, or just over 8%.  In the five years between 2003 and 2007, China’s M & As represented only 2-4% of global activity but shot up to a peak of 9% in 2009 due to relative inactivity abroad in the wake of the financial crisis, according to data analysis consultancy Dealogic.
This year, China’s domestic M & As should remain strong in consumer retail, real estate, healthcare, and chemicals and industrials while outbound M & As will be similarly upbeat on the heels of a record-setting year of US$54 billion in 2010.  In 2008 and 2009, often small and taking only minority stakes, deals in mining, telecom, utilities, and financial services topped the list of outbound Chinese M & As.  JPMorgan handled the largest volume of China’s overseas deals last year @ US$11.1 billion followed closely by Credit Suisse with US$10.7 billion.
Jack Perkowski, founder and Managing Director of JFP Holdings, a China-oriented merchant bank, explained to Forbes magazine why it has taken so long for Chinese industrial firms to venture abroad.  First of all, and historically, they simply lacked cash, especially forex to invest abroad.  Second, they faced the daunting challenge of managing operations in unfamiliar territory and vastly different cultures, sometimes proving to be more challenging than for US or European companies entering China.
Third, the shock of the financial crisis initially made Chinese companies reticent about going overseas.  But much has changed in two short years.  Chinese companies are now awash in RMB and forex from their own operations and they can easily raise funds on the Chinese A-share market, leveraging valuable real estate, and/or borrowing from the banks.  In addition, transnational financial institutions are now more than willing to support Chinese firms’global forays.
In terms of IPOs, bourses on the mainland and Hong Kong are expected to continue setting the pace in global IPOs this year, forecast Ernst & Young’s Global IPO Trends Report 2011.  In the first two months alone, the Shanghai and Shenzhen stock exchanges have raised a combined US$10.5 billion through 51 IPOs. 
Fast becoming a cross-border platform for Chinese companies, the Hong Kong Stock Exchange continues to attract listings, particularly natural resource companies, to raise more than US$50 billion this year.  Although Chinese state companies will lead the charge, many small and medium-sized consumer, infrastructure, clean technology and pharmaceutical firms are also hopping on the bandwagon.