The outbound mergers and acquisitions by Chinese companies are set to continue after the record-breaking growth in the first quarter of the year, despite the broad rising regulatory headwinds, senior executives of US investment bank Goldman Sachs Group said.
Gregg Lemkau, managing director and co-head of global mergers and acquisitions at Goldman Sachs, said that the strategic nature of Chinese outbound acquisitions will continue to lead the global M&A market.
That's despite the fact that transactions have been harder to get done, in particular in the United States and Europe, where some big transactions have been blocked by the regulators for antitrust and tax reasons.
Lemkau led an M&A team to China last week to meet with more than 160 local clients. The visit underscored the desire of foreign banks that are struggling with declining income due to market volatility, to understand the rationale of the cash-rich Chinese buyers and to tap into the explosion of their cross-border deals.
"The single most important trend in the global M&A market is the activities from Chinese companies," he said
While the uncertainty over the strength of the renminbi could be a factor that prompts the latest wave of Chinese outbound M&As, Lemkau said that the motivation of Chinese companies is more about seeking strategic growth rather than financial consideration.
"It felt less like the bubbles in 2000 or 2007. It felt more like a strategically driven one. The rationale behind the Chinese companies is to broaden their strategic ambition globally," Lemkau said.
So far this year, Chinese companies have bid $111 billion in overseas M&As, already eclipsing the full-year value in 2015, according to Dealogic. The volume of Chinese M&As this year has reached 26 percent of the global M&As, a sharp rise given the number never surpassed 10 percent in the past.
"What is striking this year is not just the level of activities in terms of the dollar amount. The sophistication and the ability of Chinese companies to get transactions closed is growing at a rate we haven't seen before," said Michael Carr, co-head of Goldman Sachs' Mergers and Acquisitions Group.
The fact that China has emerged as a strong competitor in dealmaking will likely lead to a fresh wave of competition among major investment banks that are poised to expand their market share of the cross-border M&A sector in China, industry experts said.
"Many investment banks have indeed paid greater attention to the Chinese M&A market after the explosive growth in the first quarter," David Wu, head of corporate finance for China at ING Group, a Dutch multinational banking and financial services corporation.
With a 28.3 percent market share, China International Capital Corp has led the Chinese M&A market so far this year by advising 20 deals worth of $87.1 billion.
