M&A deals become scarcer in Jan-Nov

Influenced by weak economic conditions in China and abroad, the number and value of merger and acquisition deals completed by Chinese companies decreased in the first 11 months of this year.

Even so, venture capital and private equity firms say they regard the transactions as an important means of exiting investments they have in other companies.

The first 11 months of 2012 saw Chinese companies complete 820 M&A deals, a decline of 21.2 percent year-on-year.

Of the 719 of those deals for which investment information was made public, the total value was $43.8 billion, down 22.5 percent year-on-year, according to a report released on Wednesday by the research company Zero2IPO Research Center.

As for domestic M&A deals, 681 were completed by the end of November. For the 620 of those for which data were made public, the total value was $14 billion, a year-on-year decline of 49.7 percent.

Of the M&A deals completed by Chinese companies, those conducted overseas have shown resilience to the effects that the global economic downturn has had in other places, a result in part of the eurozone's debt troubles helping to make foreign assets cheaper.

The first 11 months of the year saw Chinese companies complete 139 M&As overseas. For the 99 for which data were made public, the total value was $29.7 billion, up 4.1 percent year-on-year.

Among industries, machinery and manufacturing had the greatest number of M&A deals from January to November. The period saw Chinese companies complete 97 deals in those industries, accounting for 11.8 percent of the total number.

Measured by value, the energy and mining industries led the way. Chinese companies completed $19.4 billion worth of M&A deals in those industries during the first 11 months, constituting 44.4 percent of the total.

"China has a huge demand for energy and is going abroad in search of opportunities," said Zhu Yijie, an analyst at Zero2IPO Research Center. "Usually, Chinese buyers are State-owned enterprises that have sufficient supplies of money. So the value of these deals is usually considerable."

Zhu said M&A deals in the energy and mining industries will continue to be the most valuable in the short term. Deals related to branding, core technology and distribution networks will meanwhile become more popular.

Venture capital and private-equity firms are playing an important role in M&A deals conducted by Chinese companies. Those types of firms completed 177 of the deals, totaling $3.7 billion, in the first 11 months.

"There are 808 companies waiting to go public in China," said Liu Zhou, managing director of Fortune Capital, a leading Chinese equity investment company.

"With the way things usually go, it will take two to three years for all of them to be listed. So we should be diversifying our exit channels, and M&A is a good way to do that."

Liu said venture capital and private-equity firms used IPOs to exit from 70 percent of the investments they stepped out of in the first 11 months of the year. That's down from 90 percent last year but is still a much higher proportion than is common among investment exits in the United States.

"Amid this round of economic transformation, many opportunities are emerging in manufacturing," said Deng Feng, founding managing director of the China-based Northern Light Venture Capital.

Deng said the company will pay close attention to high-end Chinese manufacturing companies, adding that advanced technologies can be brought in from other countries.

"Increasing M&A exits is a trend in the Chinese venture capital and private-equity market," Deng said.

To add to its storehouse of technology and expand its business overseas, Sany Heavy Industry Co and Citic PE Advisors paid 360 million euros ($470.46 million) this year for the concrete-pump maker Putzmeister Holding GmbH. In 2008, Chinese construction machinery maker Zoomlion Heavy Industry Science & Technology Development Co Ltd bought its Italy-based counterpart Compagnia Italiana Forme Acciaio SpA for 271 million euros, working with Goldman Sachs and two other investors on the deal.

The China-based equipment manufacturer Shandong Heavy Industry Group, Weichai Group announced earlier this year that it had reached agreements with the chief creditors to the world's largest luxury yacht maker, the Italian company Ferretti Group, and would acquire a controlling interest in Ferretti by participating in its debt restructuring.