According to Dealogic, outbound Chinese M&A has totaled $24bn year-to-date. If this level of activity were to continue for the rest of the year, total 2011 outbound M&A by Chinese companies could reach $100bn, almost double 2010 numbers.
The overarching trend of the last 5 years has been an increased focus on natural resources companies. Outbound acquisitions by Chinese companies targeting the mining space have increased from 6% of total deal volume in 2006 to 34% in 2011 YTD. Oil & Gas has accounted for 30-40% of total outbound M&A volume for the last three years.
This trend is also reflected in the target countries with resource-rich Australia and Canada recently becoming the most targeted countries.
To what extent can we expect these trends to continue? As long as state-owned Chinese companies have a mandate to secure resources, we can expect cross-border mining and oil & gas activity to make up the vast majority of deals. But the massive surge in natural resources focused activity masks other equally important trends.
Recently, Chinese outbound M&A targeting higher value sectors has ticked up markedly. M&A targeting Healthcare companies is up from $0mm and $253mm in 2006 and 2007 to $603mm and $204mm in 2010 and 2011 YTD, respectively. On an annualized basis, the number of transactions targeting Healthcare outbound Chinese M&A is up 400% from 2007. Almost all of this activity has targeted the pharmaceutical or instruments sector within the Healthcare industry, which are significantly higher-value sectors than other verticals within Healthcare such as the care or products verticals.
M&A targeting computer & electronics companies has also increased significantly. Deal volume targeting these companies totaled $1,326mm last year (34 deals) compared to $406mm (12 deals) in 2006. If 2011 activity continues at its current pace, total 2011 deal volume could reach $2,000mm.
Though these increases can't compare with the increase in natural resources focused activity, in some ways these trends are more important. The amount of Chinese M&A targeting higher value-added sectors such as pharma and electronics is a valuable datapoint to tracking the nature of China's economic development. It is only logical that over time Chinese industry will increase its presence in higher value-added industries currently dominated by Western and Japanese/Korean companies. What might be surprising, however, is the pace at which this is already happening.
Note: my Dealogic dataset includes all announced M&A by Chinese companies where the target nationality is not Chinese.
