Caixin
Jun 02, 2017 04:59 PM
M&A

China M&As Command Big Premiums Over Asian Peers

(Beijing) — Mergers and acquisitions (M&As) involving Chinese firms were worth nearly $200 billion over the last four years, as buyers paid hefty premiums compared with peers in other Asian markets.

China has become a global hotbed for M&A activity over the last decade, as the nation’s young and fast-growing market economy churns out a steady stream of new startups with big growth potential in the world’s most populous country. At the same time, Beijing has encouraged M&As among older state-owned enterprises in a bid to make them more efficient through consolidation.

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Technology companies were the most common M&A targets in China between 2014 and the present, worth $81.5 billion, or about 42% of the total by deal value, according to the Asia-Pacific Private Equity Investment Activity report from Mergermarket. About two-thirds of that figure came from buyout activity, while the other third came from sales of companies.

After technology, the second most popular sector for deals was industries and chemicals, followed by pharmaceutical, medical and biotech, according to the survey.

The report also showed that Chinese companies commanded the biggest premium by far among major Asian markets, as buyers were willing to pay extra for such companies due to their big growth potential.

Buyers of Chinese firms on average paid a multiple of 25.9 times earnings before interest, taxes, depreciation and amortization (EBITDA), an equivalent of operating profit, for their purchases, Mergermarket said. A higher multiple generally indicates a bigger premium for companies considered to have strong potential.

By comparison, India and Australia commanded the next highest EBITDA multiples of around 16. Singapore and South Korea both had average multiples of about 13, or about half of China’s levels, while Japan only commanded 9.8, reflecting the country’s mature economy and sluggish growth.

Within China, the largest single deal over the last four years involved the buyout of security software specialist Qihoo 360. That deal saw a management-led group privatize the company from its New York listing, in a deal valued at $7.2 billion. The second largest deal saw a group led by China Life Insurance invest $7 billion in Postal Savings Bank of China, while the third saw U.S. ride sharing giant Uber sell its China business to Didi Chuxing in a deal worth $7 billion.

Contact reporter Yang Ge (geyang@caixin.com)

 

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