solveigh on chinese outbound mergers & acquisitions

China’s Outbound M&A

An overview

Hong Kong, August 23, 2013 – © Solveigh Greater China HK Ltd

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This document contains a proprietary analysis provided by Solveigh. Although care has been taken to ensure the accuracy, completeness and reliability of the information provided, Solveigh explicitly disclaims any and all liability based, in whole or in part, on the information in this document, errors herein or omissions here from. The user of the information in this document agrees that this information may be subject to changes or updates without further notice. Solveigh assumes no responsibility for the consequences of use of this information. Further distribution, reproduction or use of the information contained herein is only allowed after Solveigh’s explicit and written approval and without any adjustment to its format. Further to this, it is not allowed to load pages in frames or through other formats or other websites without Solveigh’s explicit and written permission. As a condition to such permission if provided such information should in any case link to the website of Solveigh under www.solveigh.com Solveigh Greater China HK Ltd

23 August 2013 China’s Outbound M&A

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China Outbound M&A: Summary

China’s overseas acquisitions have increased more than five-fold from 2006 to 2012, reaching an aggregate (published) annual investment amount of USD 60.4 billion by 2012. In 2012, the total value of outbound transactions again increased by 21%. Supported by the nation’s “going-out strategy” and either in search of strategic resources, new markets or key technologies, it is expected that many capital-rich Chinese companies will continue their quest for investment opportunities overseas. This overview provides an ‘average’ profile of Chinese Corporates investing and acquiring overseas including the relevance of Hong Kong. Main findings:

Most Chinese acquirers are headquartered in Beijing. Shandong and Shanghai follow at significant distance. Companies from various Chinese regions however seem to have different focuses in terms of preferred outbound target industries Mining is by far the largest category for outbound M&A, followed in distance by electronic/electrical equipment and business services Chinese acquirers in the mid-market are mostly private companies, followed by public companies and then SOEs Buyers in electronics, machinery and business services are mostly public companies, hence easier to locate Top destination for China mid-market outbound M&A are Australia and New Zealand, closely followed by Asia, North America and Europe. South America and Africa are for M&A not very relevant to Chinese enterprises For investments into Europe, manufacturing equipment/heavy machinery, food products, transportation and electronic equipment are, next to mining, the most import M&A target industries for Chinese corporate investors The HK outbound M&A market is currently approximately similar in size to the mainland Chinese outbound M&A market. The share of mainland outbound M&A compared to Hong Kong outbound M&A has been rising steadily over recent years Around 10% of Hong Kong outbound deals are completed by subsidiaries of mainland Chinese companies A large proportion of M&A failure cases are related to mining industry. After excluding the mining industry, the difference in withdraw rate between SOEs, private and public firms is not significant Differences of deal duration among SOEs, private and public companies are not very large, but SOEs still have longest average deal duration. There seems no significant relation between deal size and duration


Mainland Market

23 August 2013

Number of deals

$mln


HeatMap of Mainland Outbound M&A Deal Volume

2005 to 2012

Origin of Chinese Outbound M&A by Region

23 August 2013

115

27 23

19 15 14 14 12 10 10 7 6 6 6 6 6 5 5 4 4 3 2 2 2 2 2 1 1 1 1

0

20

40

60

80

100

120

140Be

ijin

gSh

angh

aiSh

ando

ngSh

enzh

enZh

ejia

ngG

uang

dong

Jian

gsu

Liao

ning

Gan

suH

unan

Chon

gqin

gH

ebei

Hen

anH

ubei

Sich

uan

Yuna

nSh

annx

iTi

anji

nFu

jian

Hai

nan

Jilin

Anhu

iJi

angx

iQ

ingh

aiSh

anxi

Xinj

iang

Gua

ngxi

Har

bin

Hei

long

jian

gN

eim

engg

u


Average Deal Size ($mln) per Region

23 August 2013

143.89 138.71

135.35 129.27

96.77 95.95

91.93 81.30

75.34 73.61

67.02 58.97

52.44 50.83 50.82

49.34 45.25

34.92 33.29 32.39

31.00 24.47

20.95 17.99

15.38 12.21 11.49

6.95 3.39

2.29

0 20 40 60 80 100 120 140 160

HainanHubei

QinghaiShandong

SichuanHunanBeijingShanxiFujianGansu

ShanghaiGuangxiJiangsu

ZhejiangYunan

GuangdongShenzhen

XinjiangJilin

ChongqingTianjinJiangxi

LiaoningShannxi

HebeiHarbinHenan

NeimengguAnhui

Heilongjiang


China Outbound Investment Industry Distribution

23 August 2013

0 1000 2000 3000 4000 5000 6000 7000 8000 9000 10000

MiningOil and Gas; Petroleum Refining

Electronic and Electrical EquipmentTransportation Equipment

Investment & Commodity Firms,Dealers,ExchangesTelecommunications

Wholesale Trade-Nondurable GoodsFood and Kindred Products

MachineryReal Estate; Mortgage Bankers and Brokers

128 40

20 16 16 16 15

12 10 9

0 20 40 60 80 100 120 140

MiningElectronic and Electrical Equipment

Business ServicesMachinery

Oil and Gas; Petroleum RefiningInvestment & Commodity Firms,Dealers,Exchanges

Food and Kindred ProductsTransportation Equipment

Prepackaged SoftwareWholesale Trade-Nondurable Goods

Top 10 Industry Ranking by Total Deal Value (USD $ Million)

Top 10 Industry by Number of Cases


Average Deal Size (US$ Million) per Industry

23 August 2013

168.10

103.12

91.58

88.39

88.18

74.38

68.26

67.82

51.97

51.84

47.93

41.73

32.90

30.59

23.92

10.10

0 20 40 60 80 100 120 140 160 180

Oil and Gas; Petroleum Refining

Chemicals and Allied Products

Transportation Equipment

Wholesale Trade-Nondurable Goods

Transportation and Shipping (except air)

Mining

Commercial Banks, Bank Holding Companies

Investment & Commodity Firms,Dealers,Exchanges

Food and Kindred Products

Measuring, Medical, Photo Equipment; Clocks

Machinery

Electronic and Electrical Equipment

Business Services

Textile and Apparel Products

Prepackaged Software

Drugs

*To avoid bias when taking averages, only industries with at least five completed deals are displayed


China Mainland Outbound M&A Destination by

Numbers of Deals

23 August 2013

ANZ, 103

Europe, 53

North America, 98

South America, 9 Africa, 8

Asia, 80


Industry Distribution Re European Targets

23 August 2013

8

7

6

6

4

3

2

2

2

2

2

2

2

2

2

5

Machinery

Mining







Metal and Metal Products

Hotels and Casinos

Telecommunications


Chemicals and Allied Products

Business Services

Communications Equipment

Others

Number of Cases to Europe per Industry


Beijing: Industry Distribution by Number of Deals

23 August 2013

36%

9%

6% 6%

5%

4%

3%

3% 3%

3%

3%

3%

16%

Mining



Commercial Banks, Bank Holding Companies



Drugs


Telecommunications

Business Services

Construction Firms


other


Regional Industry Distribution by Number of Deals

23 August 2013

19%

15%

15% 11%

7%

33%

Business Services


Electronic andElectrical EquipmentMining

Machinery

other

43%

13%

13%

9%

22% Mining

Electronic and ElectricalEquipment

Textile and Apparel Products

Chemicals and AlliedProducts

other

30%

20% 15%

30%

5%

Electronic andElectrical Equipment

Mining

Transportation andShipping (except air)

Others

Telecommunications

27%

20%

53%

Electronic and ElectricalEquipment


Others

Shanghai

Shenzhen

Shandong

Zhejiang


Who are the Buyers?

23 August 2013

Govt. 13%

Priv. 54%

Public 33%

Chinese Acquirers’ Parent Company’s Public Status


Acquirers’ Ultimate Parent Public Status in Top 5 Industries

23 August 2013

Priv. 63%

Govt. 23%

Public 14%

Mining

Public 50%

Priv. 47%

Govt. 3%


Public 50% Priv.

45%

Govt. 5%

Business Services

Priv. 50%

Public 31%

Govt. 19%

Machinery

Govt. 19%

Priv. 50%

Public 31%



HK Outbound M&A

HK Outbound M&A Market

Compared to Mainland market, the share of HK outbound M&A deals is decreasing overtime About 8% of the HK outbound deals are done by subsidiaries of Mainland companies.


Trend of HK Outbound Deals by Numbers from

2005-2012

23 August 2013

41 59 91

99 98 134 142 111

109 129 152

135 116 142 123 108

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2005 2006 2007 2008 2009 2010 2011 2012

Mainland HK


HK Outbound Deals Done by Subsidiaries of

Mainland Chinese Companies

23 August 2013

2 8 4 8 16 16 16 9

109

129 152

135 116

142 123

108

2005 2006 2007 2008 2009 2010 2011 2012

HK Deals from Mainland All HK deals


Target Industries of HK Outbound Deals Done by

Subsidiaries of Mainland Companies

23 August 2013

19

13

7

6

5

5

5

4

4

3

0 2 4 6 8 10 12 14 16 18 20

Mining




Business Services

Holding Companies, Except Banks

Machinery

Wholesale Trade-Durable Goods

Real Estate; Mortgage Bankers and Brokers



Failure Risk and Deal Duration

Failure Risk and Deal Duration

23 August 2013

A large proportion cases that failed is related to the mining industry. After excluding mining industry, the difference in withdrawal rate between SOE’s, private and public firms is not significant. Capital intensive industries usually take a longer time to finalize a deal. Wholesale industries also take a longer time, probably due to the complication in due diligence in this sector. Wholesale companies usually seek market, while it usually takes longer time to understand a foreign market than to, for example, evaluate a new technology. Differences of deal duration among SOE’s, private and public companies are not very large, but SOE’s still have longest average deal duration. There seems no significant relation between deal size and duration.


Industry Distribution of Withdrawn Cases

23 August 2013

40

6 4

4

3

26

Mining

Oil and Gas; PetroleumRefining

Metal and Metal Products

TransportationEquipment

Chemicals and AlliedProducts

Other


Proportion of Withdrawn Cases in Each Category

23 August 2013

16.67%

8.28% 9.09%

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

16.00%

18.00%

Govt. Priv. Public


No Significant Difference When Mining Excluded

23 August 2013

4.65% 4.63%

5.98%

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

Govt. Priv. Public


Average Duration Announcement to Completion

23 August 2013

281.00 250.50

232.78 193.73

188.00 187.17

184.18 162.50

140.77 137.61

133.60 131.88

124.43 119.45

108.14 96.78

89.79 80.78

67.86 64.92

DrugsCommercial Banks, Bank Holding Companies

Chemicals and Allied ProductsTransportation Equipment

Wholesale Trade-Nondurable GoodsWholesale Trade-Durable Goods

Food and Kindred ProductsElectric, Gas, and Water Distribution

MiningElectronic and Electrical Equipment

Agriculture, Forestry, and FishingTelecommunications

Measuring, Medical, Photo Equipment; ClocksOil and Gas; Petroleum Refining

Textile and Apparel ProductsMachinery

Business ServicesPrepackaged Software

Metal and Metal ProductsInvestment & Commodity Firms,Dealers,Exchanges

*Deal duration is calculated as the days between announcement date and completion date

**To avoid bias when taking average, only industries with at least five completed deals are displayed


Deal Duration by Acquirer Ultimate Public Status

23 August 2013

163.00

129.71 144.71

0

20

40

60

80

100

120

140

160

180

Govt. Priv. Public

Duration(days)


No Significant Relation Between Deal Value and Duration

23 August 2013

.000

1000.000

2000.000

3000.000

4000.000

5000.000

6000.000

7000.000

8000.000

9000.000

10000.000

0 200 400 600 800 1000 1200 1400 1600 1800 2000

Trac

nsac

tion

Val

ue $

mln

Duration


Methodology

Data source used: Thomson Reuters SDC database from 2005 to 2012 Excluded: individual buyers, financial buyout deals and deals between HK and mainland China For the mainland market analysis: the sample focuses on mid-market transactions and includes all published 313 successful outbound China deals ranging in deal size from US$1mln to US$500mln If a listed company is stated as state-owned in its company profile (deal “synopsis” in the database), its ownership is marked as government (even though the company might be listed) For the Hong Kong market analysis: the sample includes all the 1060 outbound successful deals from Hong Kong except to Chinese Mainland For the withdraw risk and duration analysis: the sample includes 83 withdraw cases and 420 Chinese mainland deals with valid deal announcement date and effective date


About Solveigh

Introduction Solveigh Greater China

Solveigh is a Hong Kong based independent investment banking advisory firm specializing in proprietary cross border corporate Mergers & Acquisitions between Asia and Europe.

Besides its office in Hong Kong, Solveigh has offices in China (Beijing) and Europe (Rotterdam, the Netherlands). Solveigh has a blended team of Chinese and European professionals. Solveigh has partners in over 50 countries with whom it has been cooperating and closing deals for over 10 years. Hence, Solveigh has a strong international presence and high level local access in most countries across the globe Solveigh partners are well experienced, well connected and fully committed to their clients on an exclusive basis. The team has a strong track record in terms of Chinese as well as European experience.

Solveigh was founded in 1998 in The Netherlands by investment banking professionals that wanted to create a more personalized alternative for demanding corporate clients having a need for committed advisors on cross border M&A who can truly deliver quality solutions and offer unbiased advise. In 2004 the Chinese offices kicked off and today the majority of business is done from Hong Kong as a hub for China and Asia.


Core Services Solveigh

Inbound acquisitions, Foreign Direct Investments and Western Sell-side advisory • Full-service Acquisition Management for Western Corporations intending to invest in China • Sell-side support for Western Companies looking for Chinese buyers in a strategic proprietary approach • Transaction structuring • Managing due diligence, relationship affairs, approval processes and legal arrangements • Post-completion support

Outbound acquisitions, Overseas Direct Investments and Chinese Sell-side advisory • Full-service Acquisition or Sell-side support for Chinese clients going abroad • Market entry strategies for larger Chinese firms • Transaction origination • Full M&A process support including due diligence coordination, structuring and arrangements, legal matters

(contract negotiations, approvals)

Strategic development and local support • Market review, market entry review and strategy development for China or abroad • Business development and client representation for its China affairs

Other Solveigh services • Equity and Debt structuring, Private Placements, Business Scanning, Due Diligence, Valuation, Technology

transfer, Joint Ventures


Contact Details

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Solveigh has offices in Rotterdam, Hong Kong, Brussels

and Beijing and is a partner firm in Global M&A

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23 August 2013

Mr. Ernst Jan Kruis

CEO & Founder

[email protected]

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Mr. Jona Kan

Director & Legal Counsel

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