China and Hong Kong buyouts and M&A deals cool in Q1

Private equity activities in China and Hong Kong had a slow start in 2017 amid investor concerns over China’s weakening economy and tighter rules on capital outflow.

Private equity-backed buyouts and M&A activity in both China and Hong Kong slowed in the first quarter of 2017, data from Mergermarket showed.

The number of buyouts deal in both China and Hong Kong in Q1 almost halved to 21 and the total deal value dropped by 33.2 percent from the estimates recorded for Q1 2016.

Meanwhile, the overall M&A activity in China and Hong Kong also dropped by 22.6 percentage points in the first three months of 2017 to $67 billion, down from $82.2 billion in the same period last year.

The report attributed the sluggish start of the year to investors’ concerns over China’s weakening economy and the tightening of controls of capital outflows.

In November last year, the Chinese government announced “strict controls” would be imposed over outbound deals worth $10 billion or more, and on investments of more than $1 billion in sectors unrelated to a company’s core business, until September 2017.

The industrials and chemicals sector was the most active, backed by the State Council’s “Made in China 2025” plan that encourages domestic companies to move up the value chain. The sector accounted for 23.7 percent of the total M&A deal value in China and Hong Kong with $16.7 billion invested across 89 deals. Technology was the second most active sector, collecting $11.2 billion across 52 deals. The sector took a 15.9 percent share by value in China and Hong Kong targeted M&A deals, the report said.

Among the top deals in the region this quarter include PAG Asia Capital’s $2.8 billion acquisition of Yingde Gases, Alibaba Group Holdings’ $2 billion purchase of department store chain Intime Retail Group, as well as The Carlyle Group CITIC Limited and CITIC Capital Holdings’ over $2 billion acquisition of McDonald’s China.