China M&A 2021 mid-year review and outlook

August 2021

According to PwC’s China M&A 2021 mid-year Review and Outlook, China’s domestic M&A market surged to its highest ever activity levels. Deal volumes increased 11% to 6177 transactions in the first half of 2021, with domestic (intra-China) strategic M&A up by 41% in volume terms while PE and VC investing were also strong. Deal values, which were US$312.1 billion, declined by 29% from their spike in the second half of 2020. returning to more normal levels.

Driven by strong domestic strategic and PE deal activity, the first quarter of 2021 was very strong in volume terms, but there was some relative slowing in the second quarter with some caution around market uncertainties. Deal values fell in the first half of 2021 due to much fewer one-off state-sponsored and private-sector mega-deals.

Compared with the second half of 2020, there were much fewer mega-deals (> US$1 billion) in the first half of 2021. There were 45 mega-deals in the first half of 2021, ten fewer than in the previous half-year, many of which were aligned with key domestic economic themes such as industrial upgrade (12 deals, US$ 22 billion), dual-circulation (9 deals, US$ 25 billion), and ESG (5 deals, US$ 16.5 billion).

China M&A is likely to continue to have a domestic theme in the second half, supported by the “Dual Circulation”, “Industrial Upgrade” programmes and state-owned enterprise (SOE) reforms. Many companies continue to revisit their operating models and strategies and will need capital to reconfigure their businesses leading to transactional activity. The PE industry is well placed to respond to the demand for equity capital, the overall liquidity is still high and we expect activity levels to remain strong in the second half of 2021.