BY Richard Summerfield
The Chinese economy has been in a state of flux in recent years. With the national economy being retooled and Chinese firms looking overseas for merger and acquisition opportunities, one could be forgiven for thinking that dealmaking activity within the country would be waning.
However, a new report from A.M. Best,'Chinese Mergers & Acquisitions Activity Continues Amid Evolving Regulatory and Policy Environment', suggests that activity in the country will continue, despite a number of challenges. Though activity may slow in the coming year due to an uncertain economic outlook and evolving government policies in China and overseas markets, dealmaking will continue regardless.
“The number of both outbound and domestic deals is expected to continue to grow, although depreciation pressure on the yuan and eroding foreign currency reserves may cause some downside impact on outbound deals,” notes the report.
Dealmaking in overseas real estate has proved particularly attractive to Chinese acquirers in recent years. While private enterprises have been active in jurisdictions including the US, Europe and South Korea, state owned enterprises have also begun to pursue overseas deals.
With more Chinese firms pursuing overseas opportunities, regulatory challenges will need to be overcome, particularly for those active in the US. Accordingly, the report warns Chinese acquirers to be mindful of complying with extensive regulations. It highlights Anbang’s withdrawal of its application for approval for its Fidelity & Guaranty Life deal as a key example of the increased regulatory scrutiny facing Chinese firms. In 2016, Anbang’s deal for Fidelity collapsed after New York regulators required additional information on the deal’s funding and shareholder structure.
The report also highlights Anbang’s aborted $14bn bid for Starwood Hotels & Resort Worldwide Inc., as well as Fosun’s unsuccessful purchase agreement for Israeli insurer Phoenix Holdings Ltd as examples of outbound Chinese deals which collapsed under regulatory scrutiny.
Though 2017 will likely see Chinese firms encounter more regulatory difficulty, dealmaking is set to continue. That said, depreciation pressure on the yuan and the eroding of foreign currency reserves may have an impact on outbound deals.