China looks further afield for deals as US tensions mount - M&A Forum

“In the last month alone, we have seen a number of Chinese buyers break into eastern Europe with very large deals getting done,” said Samson Lo, a managing director and head of Asia M&A at UBS. “Chinese buyers have adapted to the new reality by diversifying their investment into alternatives regions.”

Lo noted that three Chinese players are currently competing for an asset in Slovenia, while a Chinese hotel group has made an offer for a Swedish hotel company. It follows Anta Sports teaming up with FountainVest Partners on a EUR4.6 billion ($5.3 billion) bid for Finland-based Amer Sports. Meanwhile, western European nations such as Germany and the UK continue to attract Chinese interest.

With the US imposing three rounds of tariffs on $250 billion worth of Chinese goods and the Committee on Foreign Investment in the US being granted a wider inspection remit, the US share of overall Chinese outbound investment is 14% so far this year. It was 21% in 2017, according to Mergermarket data. Europe, however, has received 56% of the $103.8 billion deployed in 2018 to date, compared to 30% and 48% in the two preceding years.

However, Chinese buyers should be concerned about the rising specter of regulation in European jurisdictions as well. Already this year, Germany has taken action to derail two Chinese deals. Raghu Narain, head of investment banking for Asia Pacific at Natixis, added that shareholder resentment is another factor.

“In sectors like technology, when there are deals of very large size being done by Chinese buyers, some of the shareholders of the target companies might have strong views about the sale. We have seen a rise in this type of sentiment recently,” he said. “But if buyers avoid doing large deals in sensitive sectors then things should be fine.”

While a pan-EU oversight mechanism is likely to be introduced by the end of year, it is not as comprehensive as some western European nations wanted. A compromise solution was required because the trading bloc’s less-developed markets opposed restrictions on the inflow of capital. This might explain the Chinese push into eastern Europe – and some observers say it reflects a broader push to take advantage of Sino-US tensions.

“In the past 12-18 months, we have seen a significant diversification in the target geographies for deals. Companies in countries and regions like Turkey, the Middle East, Japan, Central Asia and even Latin America are visiting China much more often than before,” said Bagrin Angelov, head of China cross border M&A at China International Capital Corporation (CICC).

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