Siah Hwee Ang details a global shopping spree by Chinese companies, says the world can expect it to gather pace

By Siah Hwee Ang*

Global mergers and acquisitions (M&As) are on the rise.

The proportion of Chinese M&As has increased little by little over the last decade. Last year, around 600 deals were struck with a value of US$112 billion. We can expect both the volume and the value of M&As to increase significantly in 2016. 

Some of the major deals 

So far, this year has already seen major M&A deals put in motion. The most prominent one would be state-owned ChemChina’s US$43 billion bid for European agrichemicals maker Syngenta AG.

This comes after ChemChina’s acquisition of German machinery maker KraussMaffei for US$1 billion and the purchase of Italian tyre maker Pirelli for US$7.9 billion. To date, these purchases represent the largest acquisitions made by a Chinese company in both Germany and Italy. 

Last month, Dalian Wanda Group sealed a US$3.5 billion deal to acquire the majority stake in Hollywood film studio Legendary Entertainment, the producer of Batman Begins, Superman Returns and Jurassic World. This is to date the largest cross-border entertainment acquisition by a Chinese company. 

Chinese companies are also snapping up insurance, technology, healthcare and cosmetics companies in South Korea. 

On the technology front, Haier has agreed to buy General Electric’s appliances business for US$5.4 billion, pending regulatory approval. As part of the deal, Haier is authorised to use GE’s brand for these products for 40 years. 

Further, Qihoo 360 Technology Co bid US$1.2 billion in cash to purchase Norwegian web-browser developer Opera Software ASA. 

Tsinghua University Ltd plans to invest US$46.3 billion over the next five years in a bid to become the world’s third largest player in chip making, essentially trying to break the trio made up of Intel, Samsung Electronics and Qualcomm. Not impossible given that the industry is fragmented, with the top three holding a meagre 21 per cent share of the market. The company has kicked off with a stake in Western Digital at US$3.8 billion. 

Stand-out deals 

In terms of value, the ChemChina-Syngenta AG deal clearly stands out. Nonetheless, the evolution of Chinese companies’ involvement in the world stage is not about the size of deals alone. 

In this regard, two other deals stand out due to their strategic significance.

The first involves China’s COSCO Shipping Group. It has placed a bid for the majority stake in Piraeus Port in Greece. Somewhat surprisingly, COSCO is the only bidder in this deal. The deal will be worth more than €1 billion. If it does go through, and given Greece’s situation this seems probable, the location of the port will afford Chinese goods and services better access to the Mediterranean and into the European markets. Expect an influx of Chinese companies in the region. 

The second deal was struck a couple of weeks ago when a Chinese investment group, led by Chongqing Casin Enterprises Group, agreed to purchase the 134-year-old Chicago Stock Exchange (CHX). This will be the first United States stock exchange to be purchased by a Chinese company. 

Based on the CHX’s small share of the US market for stock trading, the purchase price is likely to be in the region of US$200 million. 

While the deal size is small, if the acquisition does go through it will provide a good listing ground for Chinese companies, particularly the small ones that would not qualify for the NYSE or the NASDAQ. 

What’s more, the deal will be good for CHX, which needs a transformation to better compete with the larger stock exchanges. The deal will be subject to a good amount of scrutiny from both US and Chinese authorities. 

Observations 

Past major deals involving Chinese acquisitions are not to be forgotten: Smithfield Foods by Shuanghui Holdings for US$4.7 billion (2013), Motorola Mobility by Lenovo for US$2.9 billion (2014), and Waldorf Astoria by Anbang Insurance for US$2 billion (2014). Yet, the more recent purchases seem to be more purposeful, larger and more frequent. Technology is a major common denominator in many of the current purchases. Most Chinese companies would have economies of scale. Combining this with the technological advancements from these technically-sound target companies will present lots of new potential. 

More noticeably, the brands of the acquired companies or those owned by acquired companies have become key incentives for the latest acquisitions. 

This evidence points to the fact that China is indeed moving up the value chain. Making a move along this value chain requires significant effort and cost. 

So far around US$55 billion worth of deals have been made in the first two months of this year. To put this into perspective, this figure represents half of 2015’s total value. No one is expecting this shopping spree to slow down any time soon.

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*Professor Siah Hwee Ang holds the BNZ Chair in Business in Asia at Victoria University. He writes a weekly column for interest.co.nz focused on understanding the challenges and opportunities for New Zealand in our trade with Asia.