Clifford Chance

China deals fall as restrictions bite

Headwinds increase as new protectionism and restrictions on foreign exchange mute deal making

Outbound acquisitions by Chinese bidders topped USD208.6bn in 2016, a 114% increase on the previous year, driven by industrial, chemical and technology deals into Europe and North America, says international law firm Clifford Chance on the publication its annual M&A Trends report.

But high levels of such activity have spurred the Chinese government to tighten controls over capital outflows to stem the depletion of China's foreign exchange reserves. Deal makers are already reporting marked falls in outbound Chinese deals successfully closing as hurdles get higher for deal clearance. 

Simon Clinton, partner at Clifford Chance, said:  

"The pace of change has been swift. Last year saw a big uptick in Chinese outbound M&A, but plans have largely been put on hold as companies and investors wait to see how the new caution of governments and regulators plays out.

"Whether the retreat by Chinese acquirers from the global M&A stage is a temporary or longer-term feature of the market, it's difficult not to see the current trend in the context of the new wariness around openness and trade in UK and Europe." 

A Global Shift – Clifford Chance M&A Trends 2016/17, focuses on four areas which the firm believes will see dynamic change in 2017. 

Guy Norman, Clifford Chance Global M&A leader, said:    

"The geo-political landscape is in flux, and there is a sense that the uncertain outlook marks a significant global shift.

"US tax and wider policy reforms, the forthcoming European elections and the possible re-set of key global trading relationships will make some businesses pause their M&A plans. Others will make their strategic moves while financing fundamentals remain strong and markets are in their favour."

Global M&A fell 19% during 2016 with activity totalling USD3.2 trn.* Total deal value in the US fell 23% (US domestic falling 32%) and fell 22% across Asia. Europe was down by only 11% but this figure masks a significant variance within countries. For instance, the UK fell 55% while M&A rose 27% in Germany. German industrials were targeted in China's 2016 M&A spree with Chinese deal inflows topping USD$10.3bn, up from USD$301m in 2015, including: ChemChina's EUR925m acquisition of chemical process equipment maker KraussMaffei; Beijing Enterprises EUR1.4bn acquisition of waste incineration specialist EEW and Midea's EUR4.5bn purchase of robot-maker, Kuka.