Bigger Still Better for Tech, Telecom, Media Companies
Investment in China’s telecom, media and technology (TMT) industries has regained momentum in the first half this year, hitting a high not seen since 2014, according to a report by auditing firm PricewaterhouseCoopers (PwC).
But more investment went to larger, more established companies than to startups, analysts said, warning that even the larger tech companies face serious regulatory risks and may be overvalued.
A total of 1,582 private equity and venture capital investment deals in TMT took place during the first six months of this year, 104 more than in the second half of 2016. The total was the highest since 2014, according to the PwC report, which was released on Tuesday.
The investments totaled $30.75 billion, up 22.9% over the preceding half year.
Among this year’s deals, 49 involved investments of more than $100 million, meaning that “big deals” accounted for more than 70% of total TMT investment over the first six months. The period saw one mega deal of note, in which the ride-hailing giant Didi Chuxing secured $5.5 billion in a new round of investment. Didi, founded in 2012 in Beijing, acquired Uber China in August 2016, and now boasts 20 million daily bookings in the Chinese market.
However, the volume and value of first-round investments in Chinese tech companies in 2017 have been plumbing lows last seen in 2014, the report said.
“The outstanding performance of large deals further reflects that investors prefer unicorn companies with leading positions and stable businesses,” said Amanda Zhang, PwC China Private Equity Group North China leader.
However, Brian M.Y. Choi, PwC China assurance partner, warned that there are still risks to large investments, including excessive valuations of some companies, potential damage from cyclical economic factors in some regions, and regulatory uncertainties for emerging businesses.
“In the emerging industries, where many of the unicorn enterprises operate their business, laws and regulations are yet to be well-established, so investors need to prepare for policy risks,” Choi said.
The bike-sharing business, for instance, has been a major magnet for large amounts of venture capital over the past two years. However, nearly a dozen cities, including Beijing, Shenzhen, Shanghai and Wuhan, have started to ban these companies from adding more bikes to their already clogged sidewalks.
A year after the Didi-Uber merger, the government is still investigating it on anti-trust concerns.
Contact reporter Wu Gang (firstname.lastname@example.org)
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