China’s outbound PE deals dominate Asia

China remains the largest player in Asia for cross border deals, with $7.4bn in total deal value or 85% of the region in 1H 2016.

Chinese private equity firms continue to lead the way in the Asia-Pacific region when it comes to foreign acquisitions.

In the first half of 2016, China-based funds invested $7.4 billion via cross border deals in the US and Europe, surpassing the $5.8 billion invested in the same period in 2015, and representing 85 percent of total investments from Asian funds, according to a report from Mergermarket.

Healthcare and technology are the most favoured targets. This year, Hong Kong-based PAG Asia Capital backed the $3.6 billion takeover of US printer Lexmark International, Chinese state-owned private equity firm Jianguang Asset Management (JAC Capital) and Wise Road Capital purchased Dutch chipmaker NXP Semiconductors’ standard products unit for $2.7 billion, and Beijing-based Golden Brick Capital acquired Norway-based Opera Software’s web browser business for $600 million.

In the healthcare industry, rising incomes and the ageing of the Chinese population are translating into increased spending on health and well-being. Notable transactions include CSPC Pharma’s $106 million deal with US-based Watson Laboratories for the licencing of a complex oncology drug; CITIC Private Equity-backed Luye Pharma’s acquisition of Swiss drugmaker Acino’s unit for €245 million, and Shanghai Fosun Pharmaceutical Group’s acquisition of KKR-backed Indian injectables manufacturer Gland Pharma for $1.26 billion.

Consumer investments are also gaining traction with Primavera and Ant Financial’s acquisition of Yum! China, the owner of KFC and Pizza Hut, in September 2016, as well as China Everbright Limited’s acquisition of Israeli 3D printing company XJet.

The report also tracked transaction amounts by geography from 2011 through 30 June 2016. The US received the lion’s share of Chinese outbound activity with as much as $10.1 billion in total transaction value, while the United Kingdom, Netherlands and France lagged behind at $2 billion, $1.8 billion, and $1.6 billion, respectively.

Jeffrey Wilson, director of corporate finance at law firm Houlihan Lokey said in the report that “Chinese private equity will continue to be acquisitive outside of Asia, with existing firms raising additional funds and new funds to be formed for the purpose of outbound investment”.

He added: “This will not be without challenge as the Committee on Foreign Investment in the United States (CFIUS) has already emerged as a potential barrier for Chinese firms, recently blocking GO Scale Capital’s attempted acquisition of Philip’s LED lighting component unit, Lumileds, citing supply chain concerns.”

“Private equity firms also need to overcome cultural challenges in developed markets with businesses unwilling to cede control outside their own borders.”