The value of China M&A in 2019 fell to US$559 billion, which is the lowest since 2014. Deal values and volumes dropped by 14% and 13% respectively compared to the previous year. The decline in deal values was driven by steep falls in domestic and outbound sectors. PE held up reasonably well and there was strong foreign inbound M&A, although this category is relatively small. In terms of volumes, the overall deal activity returned to the level of 2015, according to PwC’s 2019 Review and 2020 outlook.
As for industry sectors, real-estate M&A values declined for a third straight year off the back of a wave of consolidation in the sector which peaked in 2017. The values of other sectors were also down, except for industrials and consumer M&A. In terms of deal volume, the stand-out was again industrials which hit a record high benefiting from various supportive policy measures, while most other sectors were flat or declining.
The PE/VC sector is generally well-capitalised after several strong years, so there was some decline in new fund-raising in 2019. RMB fundraising continues to face difficulties, declining to its lowest level for several years. PE deals values reached US$206.3bn very close to 2018’s peak, though there were fewer deals by volume (implying higher average transaction sizes). PE was also active in industrial and consumer sectors, but there was a sharp decline in high-tech deals with only two mega-deals in the sector valued at US$2bn in total compared to 9 at US$17bn in 2018.
PE faced pressure to sell in 2019, resulting in a significant number of exits and PE-backed IPOs. The number of PE trade-sales reached a record high of 305 with an increasing number of secondary (PE to PE) transactions. PE-backed IPO activity almost doubled compared to 2018, with a strong contribution from the new STAR market in the second half of the year. Overseas markets such as Hong Kong, which opened up to more technology and biotech-companies and US were also active.
China outbound fell back to 2015 levels in value terms, with various factors combining to severely curtail large-sized cross-border transactions, as had been expected; however, there is still a solid body of smaller-sized outbound transactions with overall deal volumes holding up and even increasing slightly. POEs remained the most active overseas buyers in volume terms, although the overall value of those deals fell markedly with considerably fewer mega-deals.
In terms of geographies, the squeeze in outbound deal values is now evident in Europe with significant declines in the bigger markets of Germany (US$6.5bn from US$11bn in 2018) and UK (US$1.4bn from US$4.5bn in 2018). Outbound activity to Belt and Road countries (where deal values reached US$11.8bn in 2019) held up reasonably well in the context of the otherwise significant declines in deal values seen elsewhere.