MoneyTree™ China TMT report Q1/Q2 2018

Overview

In the first half (H1) of 2018, China ramped up efforts to encourage mass innovation and entrepreneurship and rolled out a number of supportive industry policies. High-quality projects with strong growth potential and good prospects for exit were still the most sought-after by investors. On the other hand, the private equity and venture capital (PE/VC) market showed signs of reaching an inflection point this year after a frenzied 2017 as regulators strengthened the supervision of the financial markets. Investors became more cautious.

Highlights

  • In line with the overall tone of the market, total TMT deal volume was 2,096 with a combined value of US$362.55 billion in H1 2018. The TMT industry saw a sharp decline in the number of deals from 2017 whereas the total deal value remained steady.
  • In H1 2018, the number of investments valued at over US$100 million each was unchanged from H2 2017 at 56, with a slightly higher total deal value. As a result, the average deal value of such investments exceeded US$400 million, the second-highest since 2012. Mobile e-commerce platforms, internet finance, photovoltaic, and the to-B market attracted the most investment. Short video firms also secured financing.
  • The number of early stage investment deals involving startup companies accounted for 54% of the total number of TMT investments in H1 2018, the highest among all categories. Firms at the expansion stage received the most investment, however, with deal value accounting for 42% of total TMT investment. This reflects the fact that PE/VC investors are focusing on small-value deals and looking for new growth opportunities, and they prefer projects with good prospects for development and exit that can deliver market success earlier.
  • All the four sub-sectors in the TMT industry saw a decline in PE/VC deal volume in H1 2018 amid a weak overall environment. After years of fierce competition in the Internet and Mobile Internet sub-sector, it has become increasingly difficult to attract user traffic and boost dividend growth, prompting investors to turn to niche segments. Thanks to supportive policy measures, the Technology sub-sector saw a slight increase in PE/VC deal value despite trade frictions between China and the U.S. 5G mobile telecommunications, fragmented entertainment, digital content, and ACGN sectors also attracted much attention from investors.
  • Reflecting a weak A share market and a slowdown in the pace of new share sales in H1 2018, the number of exits fell sharply in H1 2018. M&As once again were the main exit channel, followed by equity transfers and IPOs. Nearly 70% of A shares and H shares fell below their IPO prices in H1 2018, a sign that secondary market investors’ judgments about corporate valuations are different from those of primary market investors. As a result, PE/VC investors seeking exits are facing growing pressure.

 

 

Highlights

Analysis of PE/VC investment in the TMT industry

In Q1 2018, there were 2,398 PE/VC industry investments overall, with a total value of US$31.909 billion. Compared with Q4 2017, total deal volume fell 21%, and total deal value dropped 2% in Q1 2018.

In Q2 2018, there were 2,626 PE/VC investments, with a total value of US$55.674 billion. Compared with Q1 2018, total deal volume rose 10% and total deal value increased 74% in Q2 2018.

Comparison of total PE/VC investments and TMT investments from Q3 2015 to Q2 2018 (Deal value)

Investments by TMT sector  

Internet and Mobile internet
Its deal volume was the highest among all sub-sectors. Average single-deal value was close to US$23 million. There were 28 investments valued at over US$100 million each, accounting for 64% of investments valued at over US$100 million each in TMT overall. Investment in an emerging mobile e-commerce platform marked the highest single-deal value at US$3 billion.

Technology
Its deal volume was second only to that of the Internet and Mobile Internet sub-sector. Average single-deal value was close to US$13 million. 21 investments were valued at over US$100 million each, with electronics, photovoltaic, IT service, and software companies being highly sought after by investors.

Telecommunications
Investment kept declining in H1 2018, with deal value plummeting to a three-year low. Average single-deal value was around US$9 million, down 95% from H2 2017. There were no investment deals over US$100 million in H1 2018.

Entertainment and Media
Deal volume kept declining from the peak in H1 2017. Deal value rose from its H2 2017 low with average single-deal value close to US$13 million. There were seven investments valued at over US$100 million each in H1 2018. Film and television production and distribution and outdoor media received the most attention from investors.

Deal value comparison in TMT sub-sectors from Q3 2015 to Q2 2018

Analysis of PE/VC exits in the TMT industry

Q1 2018 recorded 60 exits.
Q2 2018 recorded 26 exits.
H1 2018 saw a 75% decline in the number of exits from H2 2017.

Exit volume in the TMT industry from Q3 2015 to Q2 2018

Contact us

Wilson Chow

Global and China/Hong Kong TMT Leader, PwC China

Tel: +[86] (755) 8261 8886

Jianbin Gao

China TMT Leader and Private Equity Group Central China Leader, PwC China

Tel: +[86] (21) 2323 3362

Charline Ni

China Technology Leader, PwC China

Tel: +[86] (10) 6533 2820

Vincent Cheuk

Private Equity Group Southern China Leader, PwC China

Tel: +[86] (755) 8261 8871

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