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This MoneyTreeTM China Telecommunications, Media and Technology (TMT) Report for Q3/Q4 2016 includes information on private equity and venture capital (PE/VC) investments in the TMT industry for 2016, 2015, and 2014.

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PricewaterhouseCoopers Zhong Tian LLP

MoneyTreeTM China TMT Report Q3/Q4 2016Data source: Zero2IPO Research

Contents

1. Overview 4

2. PE/VC investments in the TMT industry 5

TMT industry investments compared with all industries 5

Investments by quarter 7

Investments by sector 8

First-round funding compared with follow-on funding 11

Investments by stage of development 13

Investments by region 16

3. PE/VC exits in the TMT industry 17

Exits by quarter 17

Exits by type 18

Exits by sector 20

4. Methodology and definitions 21

5. Contacts 23

4 MoneyTreeTM China TMT Report

Wilson Chow Global TMT LeaderPwC China

Jianbin GaoTMT LeaderPwC China

those of other sectors. The Internet sector was most sought after as investors were attracted by the continued influence of ‘Internet Plus’ on traditional fields and emerging businesses such as bike sharing; therefore, the Internet subsectors remained unchallenged as the largest sector within the TMT industry.

Cultural businesses greatly benefited from the Proposals for the 13th Five-year Plan. During H2 2016, Entertainment and Media overtook Telecommunications and Mobile to finish in third place, and subsectors such as publishing and film and television were in the spotlight.

As the market expected regulatory authorities to expand direct financing channels and to deal with the pent up demand for IPOs from long-waiting IPO candidates, IPOs, especially IPOs on A-share exchanges, saw accelerated growth in H2 2016 and again became the principal form of gaining liquidity for private investors. Exits in Technology increased significantly in H2 2016, the extent of which was greater than other sectors.

Listing on Chinese exchanges became mainstream in H2 2016. But as Hong Kong and US equity markets continued to rally, companies, especially those that have not yet become profitable, chose those markets as IPO destinations.

On the whole, the TMT industry remains robust and creative, facilitating the development of other industries and ushering in continuous progress. This report brings you the details of the PE/ VC investments and exits in the TMT industry, together with its four major sectors for H2 2016, serving as a tool to update you on the key trends and trajectories shaping TMT industry investments. We welcome the opportunity to discuss the implications of this report with you, and encourage you to connect with us with any queries you have.

Against the backdrop where high finance flowed to large unicorns in the first half (H1) of 2016, PE/VC investment in the TMT industry saw a decline in deal value in the second half (H2) of 2016, but still remained at a high level.

During H2 2016, deal volume in the technology, media and telecommunications (TMT) industry set the highest six-month record since 2012, reflecting investors’ belief that TMT is a disruptive force that touches all industries.

The TMT industry accounted for over half of overall industry investment in H2 2016. Although TMT deal value recorded a smaller proportion as compared with H1 2016, the level was still higher than previous years. By and large, first-round investments represented the majority of investments in the TMT industry during H2 2016, but single- average-deal value saw a decrease from the level of H1 2016.

Q3 2016 witnessed 33 investments with single value over US$100 million and booked a new record. However, deal value for H2 went down by around 30% as compared with that of H1 due to overly disperse investments and a decrease in the number of unicorns seeking financing, which, in turn, indicated that the high valuations of unicorns deterred investors from new targets. Market investors were looking for the next unicorns, hoping to boost overall performance by leveraging a single investment.

At present, investments in the TMT industry appear to be highly concentrated and strikingly polarised.

Analysed by sector, Internet remained the most attractive sector in the TMT industry during H2 2016, with both deal volume and deal value much higher than

1. Overview

MoneyTreeTM China TMT Report 5

TMT industry investments compared with all industries

2. PE/VC investments in the TMT industry

Overall PE/VC investment was boosted by sizeable investments in large unicorns during Q2 2016, and total deal value exceeded US$40 billion for the first time. From then on, the market tended to be more rational, and total deal value returned to a more normal quarterly level of US$20-30 billion. In Q4 2016, overall industry investment reached US$27.74 billion, the second largest cap since 2012, only behind that of Q2 2016. Such a wave showed how enthusiastic strategic investors have been. Correction of TMT deal value was relatively lagging as compared with that of overall industry investment. As a result, the proportion of deal value to overall industry investment reached the record of 84% in Q3 2016, but plummeted to 29% in Q4 2016. However, the proportion of TMT deal value to overall industry investment remained above 50% in H2 2016, and single-deal value reached as high as US$4.00 billion, indicating that the TMT industry is much more popular than other industries.

PwC Viewpoints

During H2 2016, overall industry investment trended downward after hitting a peak in H1 2016, but remained historically high. Deal volume set a six-month record since 2012 to reach 5,000; particularly, Q4 2016 witnessed 3,721 deals, booking a new record for a single quarter. Total TMT deal value and volume accounted for 52% and 26% of overall industry investment, respectively.

Main findings:

1. In Q3 2016, the proportion of TMT deal value to overall industry investment value hit the highest mark since 2012, peaking at 84%.

2. In Q4 2016, TMT deal value dropped dramatically from the record high of Q3 2016, accounting for only 29% of overall industry investment and falling back to the level in 2014.


Overall PE/VC investments

PE/VC investments in the TMT industry

PE/VC funding in all industries

PE/VC funding

Q3’16$203.66

Q3’16$171.09

Q3’161,927

Q3’16927

Q3vsQ2

Q3vsQ2

Q3vsQ2

Q3vsQ2

Q4vsQ3

Q4vsQ3

Q4vsQ3

Q4vsQ3

93%

-15%

-7%

46%

36%-51%

-54%

29%

15%

84%

48%

-41%

US$m

US$m

Q4’16$277.42

Q4’16$79.13

Q4

Q4Q3

Q3

Q4’163,721

Q4’16551

PE/VC deal volume in all industries

PE/VC deal volume

Figure 1: Comparison of total PE/VC investments and TMT investments – Q1 2014-Q4 2016

PE/VC funding in TMT industry

US$m


Q1’14 Q2’14 Q3’14 Q4’14 Q1’15 Q2’15 Q3’15 Q4’15 Q1’16 Q2’16 Q3’16 Q4’16

45,000

40,000

35,000

30,000

25,000

20,000

15,000

10,000

5,000

0

$5,868$2,490

$25,632

$15,325

$24,176$21,104 $20,051

$20,366

$27,742

$7,913

$41,250

$13,936$17,109$18,584

$5,723$8,957$8,577

$11,230

$16,084$17,612

$5,539 $3,865 $5,137

$13,289

Figure 2: Comparison of total PE/VC investments and TMT investments – Q1 2014-Q4 2016 (Deal volume)

PE/VC deal volume in TMT industryPE/VC deal volume in all industries

4,000

3,500

3,000

2,500

2,000

1,500

1,000

500

0

Q4’16Q1’14 Q2’14 Q3’14 Q4’14 Q1’15 Q2’15 Q3’15 Q4’15 Q1’16 Q2’16 Q3’16

336412

618 593

1,814

2,486 2,379

1,2421,401

2,075 1,927

3,721

481717 634

927

551

954

577716

429466251271


Investments by quarter

Figure 3: TMT investments by quarter – Q1 2014-Q4 2016

Deal value

US$m Volume

Deal volume

25,000

20,000

15,000

10,000

5,000

0

1,200

1,000

800

600

400

200

0

Q4’16Q1’14 Q2’14 Q3’14 Q4’14 Q1’15 Q2’15 Q3’15 Q4’15 Q1’16 Q2’16 Q3’16

$2,490

$5,539

$3,865$5,137

$8,577 $8,957

$13,289

$13,936

$20,051

$17,109

$7,913

$5,723251271

466429

716

954

481

717

634

927

551577

Figure 4: Volume of TMT investments with single value over US$100 million – Q1 2014-Q4 2016

In Q3, deal value experienced a decline, but deal volume rose to an all-time high with the number of investments with single-value over US$100 million setting a record

In Q3, while deal volume rose sharply over the previous quarter, TMT deal value experienced a decline, with average single-deal value dropping 44% on a quarter-on-quarter basis. Volume of investments with single value over US$100 million reached 33, 1.4 times as many as that of the previous quarter, booking the highest level since 2012. Total value of investments with single value over US$100 million amounted to US$11.16 billion in Q3, accounting for 65% of overall TMT investment. An internet finance company received US$4.00 billion of funding, the highest single-deal value and a historical record.

Both total deal value and deal volume experienced decline in Q4

TMT deal value in Q4 plummeted from the investment spree seen in Q2 and Q3, which fell in line with expectations; however, the level was still higher than that of Q4 2015. As compared with the previous quarter, average single-deal value decreased by 22%. Q4 witnessed 19 investments with single-value over US$100 million, and the highest single-deal value amounted to US$600 million. Total value of investments with single value over US$100 million amounted to US$3.75 billion in Q4, accounting for 47% of overall TMT investment.

During H2 2016, deal volume in the TMT industry hit the highest six-month level since 2012 and reached 1,478, reflecting investors’ confidence in the TMT industry. However, deal value for H2 went down by around 30% as compared with that of H1 due to overly disperse investments and a decrease in the number of unicorns seeking high finance, which, in turn, indicated that the high valuation of unicorns had deterred investors from new targets. Market investors were seeking the next unicorns, hoping to boost the overall trends by leveraging on a single hot ticket investment.

At present, investments in the TMT industry appear to be highly concentrated, reflected in total value of investments with single-value over US$100 million accounting for around 50% of total TMT industry investment value. At the same time, investments in the TMT industry also seemed strikingly polarised, as shown by investments with single value below US$100 million emerging in large volume, the value of which remained at low levels.

PwC Viewpoints

35

30

25

20

15

10

5

0

Q4’16Q1’14 Q2’14 Q3’14 Q4’14 Q1’15 Q2’15 Q3’15 Q4’15 Q1’16 Q2’16 Q3’16

7

11

19 1920 21

2223

33

11

7

9


Investments by sector

Figure 6: Deal volume comparison of the TMT sectors – Q1 2014-Q4 2016

600

500

400

300

200

100

0

Q3’16 Q4’16Q1’14 Q2’14 Q3’14 Q4’14 Q1’15 Q2’15 Q3’15 Q4’15 Q1’16 Q2’16

Telecommunications and MobileInternetTechnology Entertainment and Media

912 15 10 20 31

4526

76112 113

94 78119

207

105

152

269

61

138 125

245

370

487

239

316

74

48 40

125

228

154

50

136

426

535

301

153

55

42

224

108

60

386

117

64

67105

Figure 5: Deal value comparison of the TMT sectors – Q1 2014-Q4 2016The TMT industry sectors are: Technology, Internet, Telecommuni-cations and Mobile, and Entertainment and Media.

Internet: The Internet was the hottest investment sector in the TMT industry. Deal value totalled US$18.19 billion in H2 2016, down by 15% from H1 2016. Deal volume grew slightly by 3% from the level in H1 2016, but single-deal value saw a decline as compared with H1 2016. H2 2016 witnessed 39 investments with single value over US$100 million. However, volume of high finance decreased, with only one deal valued over US$1 billion, at US$4.00 billion.

Technology: Both deal value and volume in the Technology sector were second only to those of the Internet sector. Deal volume in H2 2016 rose 49% over the level of H1. Deal value in Q3 reached a historical peak to stand above US$3 billion, while that of Q4 slumped to US$1.09 billion. H2 2016 witnessed eight investments with values over US$100 million, and the highest single-deal value amounted to US$842 million.

Entertainment and Media: Deal volume in H2 2016 grew 39% over H1 2016 to 163. Volume in Q3 even exceeded the level of 100 to stand at 108, booking an all-time high record. As there was no mega cap investment in H2 2016, deal volume for such period descended by 37% from H1 2016; but average single-deal value in both Q3 and Q4 remained stable. H2 2016 witnessed only two investments with values over US$100 million, and the highest single-deal value amounted to US$301 million.

Telecommunications and Mobile: Deal value and volume in this sector were overtaken by those of Entertainment and Media; thus, this sector fell to the bottom in the chart. Deal volume in Q3 remained more or less the same as that in Q2, but deal volume dropped 30% in Q4 as compared with that of Q3. Deal value in Q3 decreased 88% as compared with Q2, which was attributable to a sizeable investment of US$4.50 billion in a mobile service company in Q2. On the contrary, deal value climbed slightly by 7% in Q4. H1 2016 witnessed only three investments with values over US$100 million, each valued at around US$100 million.

Among the 33 investments with single value over US$100 million in Q3 2016, Internet, Technology, and Entertainment and Media accounted for 73%, 21% and 6%, respectively.

Among the 19 investments with single value over US$100 million in Q4 2016, Internet, Telecommunications and Mobile, and Technology accounted for 79%, 16% and 5%, respectively.

In H1 2016, TMT industry investment value was greatly boosted by sizeable investments in a number of super-sized unicorns. The market continued to thrive in H2 2016 after the super-sized company investment spree, and deal volume saw a rise due to market expectations. But there was no blockbuster company during the period; therefore, single-deal value declined dramatically, which directly dragged down the deal value in H2 2016. Internet remained the most attractive sector in the TMT industry, with both deal volume and deal value much higher than those of other sectors. The Internet sector was most sought after as investors were attracted by the continued influence of ‘Internet Plus’ on traditional fields and emerging businesses such as bike sharing; therefore, the Internet sector remained unshaken as the largest one within the TMT industry. Technology remained the second, while Entertainment and Media overtook Telecommunications and Mobile to take third place. Sectors such as publishing, film, and television attracted much more attention from the market during H2 2016. As stated in Proposals for the 13th Five-year Plan, the culture industry will become a pillar of the national economy by 2020. Accordingly, it can be expected that, stimulated by a series of favourable policies, the entertainment industry will enjoy a period of strong growth. People will invest more in education, culture and entertainment fields, and there will be more channels to liquidate investments.

PwC Viewpoints

Telecommunications and MobileEntertainment and Media

25,000

20,000

15,000

10,000

5,000

0

$2,490

$5,539$3,865

$5,137 $5,718

$7,913$8,577 $8,957

$13,288 $13,936

$17,109

$20,051

Q3’16 Q4’16Q1’14 Q2’14 Q3’14 Q4’14 Q1’15 Q2’15 Q3’15 Q4’15 Q1’16 Q2’16

US$m

TechnologyInternet


Q3 2016

Total deal volume for the TMT industry reached 927 deals, with a total investment value of US$17.11 billion.

Deal volume by sector

Internet: 535 deals, 58% of the total

Technology: 224 deals, 24% of the total

Entertainment and Media: 108 deals, 12% of the total

Telecommunications and Mobile: 60 deals, 6% of the total

Figure 8: Deal value in TMT sectors – Q3 2016 (US$m)

$124,0273%

$31,9519%

$5993%

$9135%

InternetTechnologyEntertainment and MediaTelecommunications and Mobile

Figure 7: Deal volume in the TMT sectors – Q3 2016

53558%

22424%

10812%

606%


QoQ comparison between Q3

2016 and Q2 2016

Deal volume

Deal value

Technology 91% 11%

Internet 39% 28%

Telecommunica- tions and Mobile

6% 88%

Entertainment and Media

61% 49%

Deal value by sector

Internet: US$12.40 billion, 73% of the total

Technology: US$3.20 billion, 19% of the total

Entertainment and Media: US$913 million, 5% of the total

Telecommunications and Mobile: US$599 million, 3% of the total


Q4 2016


Deal volume by sector



Entertainment and Media: 55 deals,

10% of the total

Telecommunications and Mobile:

42 deals, 7% of the total

Figure 10: Deal value in TMT sectors – Q4 2016 (US$m)


2016 and Q3 2016

Deal volume

Deal value

Technology 32% 66%

Internet 44% 53%

Telecommunica- tions and Mobile

30% 7%


49% 56%

Deal value by sector

Internet: US$5.79 billion, 73% of the total

Technology: US$1.09 billion, 14% of the total

Telecommunications and Mobile: US$640 million, 8% of the total

Entertainment and Media: US$398 million, 5% of the total

Figure 9: Deal volume in TMT sectors – Q4 2016

30155%

15328%

5510%

427%


$5,78873%

$1,08714%

$64018%

$3989%



Figure 11: TMT follow-on funding compared with initial investments – Q1 2014-Q4 2016

100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

0%

Q3’16 Q4’16Q1’14 Q2’14 Q3’14 Q4’14 Q1’15 Q2’15 Q3’15 Q4’15 Q1’16 Q2’16

Follow-on investmentsInitial investments

67%63% 61% 58%

78% 73%

65%60% 62%

46%44% 45%

First-round funding compared with follow-on funding

Q3 2016 Q4 2016


Q3’16First-round$21.89Total investment$171.09

Q3’16First-round576Total investment927

13%

46%

13%

62%

US$mQ4’16First-round$10.18Total investment$79.13

Q4

Q4Q3

Q3

Q4’16First-round251Total investment551

PE/VC deal volume in all industries


Q3 2016

Enterprises engaged in first-round funding by sector:

Internet: 345 enterprises, with US$1.29 billion of funding in total;

Technology: 124 enterprises, with US$507 million of funding in total;

Entertainment and Media: 74 enterprises, with US$15 million of funding in total;

Telecommunications and Mobile: 33 enterprises, with US$245 million of funding in total

For first-round funding, 467 enterprises were at the early stage, accounting for 81%; 94 enterprises were at the expansion stage, accounting for 16% and 15 enterprises were at the late stage, accounting for 3%.

Q4 2016

Enterprises engaged in first-round funding by sector:

Internet: 155 enterprises, with US$669 million of funding in total;

Technology: 53 enterprises, with US$235 million of funding in total;

Entertainment and Media: 28 enterprises, with US$76 million of funding in total;

Telecommunications and Mobile: 15 enterprises, with US$38 million of funding in total

For first-round funding, 187 enterprises were at the early stage, accounting for 75%; 58 enterprises were at the expansion stage, accounting for 23% and 6 enterprises were at the late stage, accounting for 2%.Q3 2016

First-round funding (US$)

Number of enterprises

< 1m 207

1m-5m 290

>5m-10m 34

>10m 45

Q4 2016

First-round funding (US$)

Number of enterprises

< 1m 66

1m-5m 136

>5m-10m 25

>10m 24

We have seen a continual emergence of new companies that have contributed to innovation and entrepreneurship in fields that are changing people’s lifestyles and living environments. This is the trend of the times, and so new projects in this arena have attracted attention from investors. Deal volume of initial investments took up over 60% in Q3 2016, but the proportion slid to 46% in Q4 because of an overall downward trend. While deal value of initial investments still accounted for 13%, they remained at a low level; investments with single value below US$5 million accounted for the majority of investments. These trends can be viewed as an indication of how investors have assessed the future value of such new projects. For projects with a fair degree of uncertainty, deal value was relatively small, which showed that a prudent attitude on start-ups was prevalent in the market.

124

33

34574

15553

1528

PwC Viewpoints


Investments by stage of development

Figure 12: TMT investments by stage of development – Q1 2014-Q4 2016 (Deal value)

Early stageLate stage Expansion stagePIPE

25,000

20,000

15,000

10,000

5,000

0

US$m

Q3’16 Q4’16Q1’14 Q2’14 Q3’14 Q4’14 Q1’15 Q2’15 Q3’15 Q4’15 Q1’16 Q2’16

$2,490

$5,539$3,865

$5,137

$8,577$8,957

$13,289 $13,936

$17,109

$20,051

$5,723

$7,913

Figure 13: TMT investments by stage of development – Q1 2014-Q4 2016 (Deal volume)

Deal value for early-stage investments in Q3 hit high since 2012

Among the four stages of investment, the deal volume for early-stage investments remained at the top, accounting for over 50% of the total. Deal volume increased slightly from H1 2016, but saw little fluctuation. The market was highly interested in emerging business such as bike sharing. Deal value reached US$9.13 billion in Q3 and hit the peak since 2012, which included US$4.00 billion of funding in an internet finance company. H2 2016 witnessed two huge deals exceeding US$500 million, each one relating to an internet service company and the other relating to an internet finance company.

Deal value for expansion-stage investments maintained at a high level in H2, and six-month deal volume set a new record

Deal value for expansion-stage investments returned to the normal range of US$3 billion each quarter after hitting a record high in Q2 due to two unicorn investments valued as high as US$4.50 billion in Q2. Deal volume set a new record in H2 2016, reaching 424, andaccounting for more than 20% of the total.

Deal volume for late-stage investments in H2 approximated that of H1, but deal value saw a dramatic decline

Deal value in H2 2016 plummeted by 61% as compared with H1, when a renowned B2C company attracted US$3.30 billion of funding in Q1. As for deal volume, late-stage investments accounted for about 10%.

Investments in PIPE maintained at a high level in Q3 but slumped in Q4

Both deal value and volume remained at high levels in Q3, but both fell sharply in Q4. Deal value in Q3 reached about US$4 billion, which was boosted by 12 investments with single values over US$100 million. Q4 saw only five investments, but deal value amounted to US$754 million, which benefited from US$555 million of investment into an internet medical care company.

Early stage PIPE

700

600

500

400

300

200

100

0

Expansion stage Late stage

Q3’16 Q4’16Q1’14 Q2’14 Q3’14 Q4’14 Q1’15 Q2’15 Q3’15 Q4’15 Q1’16 Q2’16

22 21 2962 65 75

16

57

25

119

447

598

231 280

193

62 73

536

371

149181

232

13312992

63

1610

81122

165 160

314

312

544

367

603

272

109

17

6 53 412 10

25


Q3 2016

Total deal volume for the TMT industry reached 927 deals in Q3, with a total investment value of US$17.11 billion.

Deal volume by stage of development:

Early stage: 598 deals, 65% of the total

Expansion stage: 231 deals, 25% of the total

Late stage: 62 deals, 7% of the total

PIPE: 36 deals, 3% of the total

Figure 14: Deal volume in TMT industry by stage of development – Q3 2016

59865%

23125%

363%

Early stageExpansion stageLate stagePIPE

627%

Figure 15: Deal value in TMT industry by stage of development – Q3 2016 (US$m)

$9,12953%

$3,68622%

$3,65721%

$6374%

Early stagePIPEExpansion stageLate stage

Deal value by stage of development:

Early stage: US$9.13 billion, 53% of the total

PIPE: US$3.69 billion, 22% of the total

Expansion stage: US$3.66 billion, 21% of the total

Late stage: US$637 million, 4% of the total


2016 and Q2 2016

Deal volume

Deal value

Early stage 61% 199%

Expansion stage 28% 70%

Late stage 9% 42%

PIPE 44% 4%



2016 and Q3 2016

Deal volume

Deal value

Early stage 53% 66%

Expansion stage 16% 22%

Late stage 18% 92%

PIPE 86% 80%

Q4 2016


Figure 16: Deal volume in TMT industry by stage of development – Q4 2016

28051%

19335%

7313%

51%


Figure 17: Deal value in TMT industry by stage of development – Q4 2016 (US$m)

$3,08639%

$2,85036%

$1,22316%

$7549%


Deal volume by stage of development:

Early stage: 280 deals, 51% of the total

Expansion stage: 193 deals, 35% of the total

Late stage: 73 deals, 13% of the total

PIPE: 5 deals, 1% of the total

Deal value by stage of development:

Early stage: US$3.09 billion, 39% of the total

Expansion stage: US$2.85 billion, 36% of the total

Late stage: US$1.22 billion, 16% of the total

PIPE: US$754 million, 9% of the total


Investments by region

Figure 18: The top five regions for TMT investments in Q3/Q4 2016 (Deal volume/Deal value)

In terms of investment by region, both the deal volume and value in Beijing were far above the figures seen by other areas in H2 2016. Beijing remained the core area for the Chinese TMT industry. The odds of other regions overtaking Beijing over the short run are very slim. Judged by deal volume, Shanghai secured the second spot, followed by Shenzhen. Zhejiang ranked second in terms of deal value, which was mainly attributable to one high-value deal.

PwC Viewpoints

Beijing 583

Shanghai 233

Shenzhen 162

Zhejiang Province 122

$13,532

$1,407

$2,657

$2,532

77 $583Guangdong Province (except Shenzhen)

0 5,000 10,000 20,00015,000Deal volume

US$m


Exits by quarter

3. PE/VC exits in the TMT industry

In Q3 2016, the proportion of IPOs surpassed that of strategic sales for the first time since Q3 2015, and a trend that continued in Q4 2016. As market expectations for the regulatory authorities to expand direct financing channels and to deal with the pent-up IPO demand for IPOs, IPOs, especially IPOs on A-share exchanges, saw accelerated growth in H2 2016 and became the principal form of gaining liquidity for private investors. This trend will continue as long as the Chinese capital market continues to support this momentum.

Listing on Chinese markets became mainstream in H2 2016. But as Hong Kong and US equity markets continued to rally, companies, especially those that have not yet become profitable, will choose these markets as IPO destinations.

Figure 19: Exit volume in the TMT industry – Q1 2014-Q4 2016

80

70

60

50

40

30

20

10

0

Q3’16 Q4’16Q1’14 Q2’14 Q3’14 Q4’14 Q1’15 Q2’15 Q3’15 Q4’15 Q1’16 Q2’16

23 2326

69

53

46 46

20

47

2016 17

In Q3 2016, the proportion of IPOs surpassed that of strategic sales for the first time since Q3 2015, and a trend that continued in Q4 2016. As market expectations for the regulatory authorities to expand direct financing channels and to deal with the pent-up IPO demand for IPOs, IPOs, especially IPOs on A-share exchanges, saw accelerated growth in H2 2016 and became the principal form of gaining liquidity for private investors. This trend will continue as long as the Chinese capital market continues to support this momentum.

Listing on Chinese markets became mainstream in H2 2016. But as Hong Kong and US equity markets continued to rally, companies, especially those that have not yet become profitable, will choose these markets as IPO destinations.

PwC Viewpoints


Exits by type

Figure 20: TMT exit trends by type – Q1 2014-Q4 2016

80

70

60

50

40

30

20

10

0

Q3’13 Q4’13Q1’14 Q2’14 Q3’14 Q4’14 Q1’15 Q2’15 Q3’15 Q4’15 Q1’16 Q2’16

IPO Strategic saleManagement buy-outSecondary sale

11 1 1

32

1

2 22 2

6845 5

8

4

710

11

11

14 20 32

13

12

29 28

18

19

31

16

15

25

19

10

8

Q3 2016 Q4 2016

Strategic sale

1 16

3119

5%

95% 66%

34%

Exit volume

The number of IPOs increased significantly in H2 2016 due to the resumption of IPOs which began in November 2015. IPOs in Q3 accounted for 95% of the total exit volume, and those in Q4 took up over 60% of the total, indicating that IPO has become the principal way of capital exit.

The proportion of strategic sales experienced a sharp decline in H2 2016, but strategic sale continues to be the second choice for capital exit.

H2 2016 saw no management buy-outs or secondary sales.

IPO


20 exits in Q3 2016

IPO: 19 deals, 95% of the total

Strategic sale: 1 deal, 5% of the total

Figure 22: Exit types in the TMT industry – Q3 2016

1995%

15%

Strategic saleIPO

Figure 23: Exit types in the TMT industry – Q4 2016

3166%

1634%

Strategic saleIPO

47 exits in Q4 2016

IPO: 31 deals, 66% of the total

Strategic sale: 16 deals, 34% of the total

Figure 21: Comparison of TMT IPOs in Mainland China, Hong Kong and US capital markets – Q1 2014-Q4 2016

Mainland China Hong Kong The United States

Q1’14 Q2’14

90%

10%

64%

27%9%

Q4’14Q3’14

64%

27%9%

50% 57%

29%14%25%25%

10%10%14%

Q1’15 Q2’15

86% 80%

10%10%14%

Q3’15 Q4’15 Q1’16 Q2’16 Q3’16 Q4’16

90%

10%

71%

29% 8%

92%

33%

67% 89% 87%

10%3%5%5%

Q3 2016

Q4 2016

Shanghai Stock Exchange

ChiNext of Shenzhen Stock Exchange

SME Board of Shenzhen Stock Exchange

Hong Kong Main Board NASDAQ

8

17

2

12 1

7

813

Exit volume

Listed company

Thanks to the resumption and acceleration of IPOs on A-share market, IPO exits rose in H2 2016, up by 67% as compared with H1 2016.

As for the destination of IPOs, The Shanghai Stock Exchange and the ChiNext of the Shenzhen Stock Exchange were the core areas for domestic IPOs, while the Hong Kong Main Board and the National Association of Securities Dealers Automated Quotations (NASDAQ) were the main locations for IPOs overseas.


Exits by sectorQ3 2016

Exits by sector in the TMT industry:





Figure 24: IPO exits by sector in the TMT industry – Q1 2014-Q4 2016

Q4 2016

Exits by sector in the TMT industry:





Exits in the Technology, Internet, and Telecommunications and Mobile sectors decreased in Q3, but bounced back to the level of H1 in Q4.

Exits in the Technology sector increased significantly, taking up over half of the total.

Technology

InternetTelecommunications and Mobile


40

35

30

25

20

15

10

5

0

Q1’15 Q2’15 Q3’15 Q4’15 Q1’16 Q2’16 Q3’13 Q4’13Q1’14 Q2’14 Q3’14 Q4’14

00

22

2 22

13

9

9

6

12 11

1716

10 10

8 8 5 9

4 43

35

27

22

16

22

26

14

11

7 7 7

33

34 4 4

11

1


4. Methodology and definitions

TMT is an acronym for Telecommunications, Media and Technology. The three words represent Telecommunications and Mobile, Media, and Technology, respectively. In this report, we have carried out analysis of the three most active sectors within TMT. They are Technology, Internet, and Telecommunications and Mobile.

This report covers Q3 and Q4 2016. However, in order to show trends and make comparisons in the industry, we have included data from Q1 2014 to H1 2016. In this report, only deals disclosing specific investment data were included in relevant analysis. Deals that did not disclose the specific investment period, deal value or investment stage were excluded from the relevant analysis in order to maintain the accuracy of the report.

All data in this report was provided by Zero2IPO Research.

Definitions

Technology sector

Hardware: Computer hardware, computer peripherals, network equipment, etc.

Software: Basic software, software applications, etc.

IT Services: IT consultation, software outsourcing, hosting services, computer and network security, etc.

Electronics & Optoelectronics Devices: Optoelectronic components, optoelectronics, electronics, power supply, etc.

Semiconductor: IC design, IC testing and packaging, IC equipment manufacturing, etc.

Internet sector

E-commerce: B2C, B2B, C2C, etc.

Internet Marketing: Information portal, search engine, advertising agency, and Internet marketing services

Internet Services: Online travel services, online recruitment services, online housekeeping services, etc.

Online Education: E-learning, online classroom, etc.

Online Entertainment: Online gaming, online video, and online music

Social Media: BBS/Forum, online networking, etc.

Internet Finance: I-finance, E-payment, etc.

Telecommunications and Mobile sector

Telecom Equipment and Terminals: Telecommunications and mobile equipment, telecommunications and mobile terminals, telecommunications and mobile software, etc.

Other Telecommunications Subsectors: Mobile operators, fixed-line operators, virtual network operator (VNO) and others

Mobile: Mobile entertainment, mobile advertising, mobile shopping, mobile healthcare, mobile technology, mobile education, mobile services, mobile social media, and mobile messaging

Entertainment and Media sector

Traditional Media: Newspaper, magazines, publishing, etc.

Outdoor Media: Outdoor print ads, outdoor LED TV, mobile TV, building TV, etc.

Video Production and Distribution: Film and television production and distribution, film projection, etc.

Advertising Creation/Agency: Ad creation, media buying, ad agency, etc.

Cultural Transmission: Culture brokerage and agency, etc.

Entertainment & Leisure: Animation and other industries


Stage of development

Early stage: This stage varies from one to five years while the product or concept is under development and not yet in mass and commercial production. During this stage, funds are mainly used for acquiring production equipment and developing products as well as marketing and setting up management systems.

Expansion stage: The investment period at this stage usually lasts about two or three years. The products or services have been recognised by the market. The company generally needs more funds to further develop the product, as well as to expand facilities and production. Inventory planning and marketing efforts are also ramped up.

Late stage: During this stage, the company has grown its operating revenue, and is more likely to be, but not necessarily, profitable. The company may have plans to go public. The main purpose of financing is to seek capital to grow capacity, and to introduce shareholders with industry experience and influence, thereby increasing corporate recognition and attracting shareholders. The company will aim to improve its financial structure and management system in preparation for listing. At this stage, the investment risk is the lowest, but the chance of high returns is also lower.

PIPE (private investment in public equity): PE investments in publicly listed companies via preferential allotments or private placements, and the acquisition of shares by PE firms via the secondary market.

Exits

IPO: IPO is short for initial public offering. IPO refers to listing on the stock markets in Shanghai, Shenzhen, Hong Kong and overseas, and listing on the National Equities Exchange and Quotations.

Strategic sale: This includes the sale of the PE or VC investors’ equity stakes (or the entire investee company itself) to a third-party company.

Management buy-out: The purchase of a company by its management through either debt-credit finance or a stock transaction, which results in relevant changes in corporate ownership, control, residual claim and assets, in order to alter the structure of corporate proprietary rights. Through management buy-out, the company’s operators become its owners.

Secondary sale: Any purchase of the PE or VC investors’ equity stakes by another PE or VC investors constitutes secondary sale.


If you’d like to discuss what’s happening in your particular TMT market or how PwC might be able to help your company meet its challenges, please reach out to one of the TMT industry leaders listed here.

5. Contacts

Wilson ChowGlobal TMT LeaderPwC China+86 (755) 8261 [email protected]

Jianbin GaoTMT LeaderPwC China+86 (21) 2323 [email protected]

MoneyTreeTM China TMT Report Editorial Team:Frank LinPartner, [email protected]

Brian B YanSenior Manager, [email protected]

Lina MiaoMarketing & Communications Manager, Private Equity & [email protected]

Donald HuangSenior Associate, [email protected]

BeijingSandy R Xu+86 (10) 6533 [email protected]

ShanghaiJianbin Gao+86 (21) 2323 [email protected]

Alvin Bao+86 (21) 2323 [email protected]

Frank Lin+86 (21) 2323 [email protected]

GuangzhouAlex Chan+86 (20) 3819 [email protected]

ShenzhenVincent Cheuk+86 (755) 8261 [email protected]

Hong KongCecilia Yau+852 2289 [email protected]

www.pwccn.comThis content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.

© 2017 PricewaterhouseCoopers Zhong Tian LLP. All rights reserved. PwC refers to the China member firms, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details.

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