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, Mainland China and Hong Kong Technology, Media and Telecommunications Industry 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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