China M&A 2020 review and 2021 outlook

January 2021

China M&A increased by 30% to US$733.8 billion in 2020, the highest since 2016, driven by strong state and government investment support. Deal volumes increased by 11%, with a significant increase in private equity M&A offset by a decrease in cross-border deals, according to PwC’s China M&A 2020 Review and 2021 Outlook.

Deal values held up after a sharp lockdown dip in February 2020, bouncing back strongly over the next few months and significantly surpassing prior year in the second half of 2020. The increase in deal values was driven by strong SOE participation in both domestic strategic and financial-buyer deals, mitigated by a steep decline in cross-border M&A.

There were 93 mega-deals (> US$1 billion) in 2020 (compared to 80 in 2019), reflecting an acceleration of the SOE reform process and government support in response to the economic turbulence; and strong private equity interests in consumer, high tech, and advanced industrials; but there were only 8 outbound mega-deals.

China M&A is likely to continue to have a domestic theme in 2021, supported by SOE reform and the ‘Dual Circulation’ and ‘Industrial Upgrade’ programmes. We expect some increase in M&A volumes overall in 2021, largely driven by domestic and PE activities, although whether the dollar value of M&A increases year-on-year will depend upon the extent of continued state-involvement. Hot IPO markets and high asset prices will also drive M&A, and we expect to see more M&A activities around restructuring and distress even as the economy rebounds. Overall levels of outbound M&A are likely to increase from the low of 2020, albeit this may take some time to play through so we do not see 2019 levels being surpassed.