Etude PwC sur les fusions-acquisitions en Chine (2013)

PwC M&A 2012 Review and
2013 Outlook
30 January 2013
PwC China Beijing Advisory Leader: Nelson Lou
PwC Northern China Transaction Services Leader : Leon Qian

Foreword – explanation of data shown in this presentation (1 of 2)

• The data presented is based on information compiled by ThomsonReuters,
ChinaVenture and PwC analysis unless stated otherwise
• Thomson Reuters and ChinaVenture record announced deals. Some
announced deals will not go on to complete
• The deal volume figures presented in this report refer to the number of deals
announced, whether or not a value is disclosed for the deal
• The deal value figures presented in this report refers only to those deals
where a value has been disclosed (referred to in this presentation as
“disclosed value”)
• “Domestic” means China including Hong Kong and Macau
• “Outbound” relates to mainland China company acquisitions abroad
• “Inbound” relates to overseas company acquisitions of Domestic companies，
• “Private Equity deals” or “PE deals” refer to financial buyer deals with deal
value over US$10mn and/or with undisclosed deal value but invested by PEs
PwC 2

Foreword – explanation of data shown in this presentation (2 of 2)

• “VC deals” refer to financial buyer deals with deal value less than US$10mn
and/or with undisclosed deal value but invested by VCs
• “Strategic buyer” refers to corporate buyers (as opposed to financial buyers)
that acquire companies with the objective of integrating the acquisition in
their existing business
• “Financial buyer” refers to investors that acquire companies with the
objective of realizing a return on their investment by selling the business at a
profit at a future date and mainly, but not entirely, comprise PE and VC
funds
• In order to exclude foreign exchange impact, deal values from 2008 to 2011
were adjusted based on 2012 average Rmb/US$ exchange rate

PwC 3

Key messages (1 of 2)
Overall
• Overall 2012 China M&A decreased 26% by volume and 9% by value, with only
Outbound deals showing growth (in value terms); we expect M&A activity to
rebound in all sectors in 2013, with Outbound activity continuing to grow
especially strongly
China Outbound
• Although China Outbound deal volumes surprisingly showed a small decline, deal
values grew by 54% to reach a new record high of US$65.2 billion comprising more
than a third of overall M&A activity measured by value, by far the highest
proportion ever; we see many more deals in the pipeline and expect this growth
trend to continue strongly with another record year in 2013
• We are seeing privately owned enterprises (POEs) taking on larger deal sizes; we
think that private sector companies will be key drivers in the future growth of
China Outbound M&A
• The growing activity of private sector buyers in acquiring industrial technologies
and consumer-linked businesses overseas is an important trend; many of these
deals are aimed at bringing advanced western technologies, know-how, IP and
brands back for use in the Chinese domestic market; we are also seeing some POEs
using overseas M&A to go global in addition to concentrating on the domestic
market
PwC 5

Domestic and Foreign-Inbound Strategic
• Both Domestic and Foreign-Inbound Strategic buyer deal activity fell to their
lowest levels in the last five years with declines greater than those seen after the
global financial crisis
• We think activity will rebound in 2013 as the direction of the Chinese economy
becomes clearer, industry consolidation accelerates, domestic leadership changes
take effect, and foreign economies start to emerge from their stressed states
allowing MNCs to deploy cash reserves with greater confidence implementing their
China market entry or growth strategies
Private Equity
• In the PE sector there will be sharp consolidation across the industry, and the
backlog of exits represents a real challenge for the sector
• PE has emerged as a key provider of capital to the liquidity starved private sector
of the economy in China with real policy support - this demand for capital is
driving strong market growth and activity; there are exceptionally strong
tailwinds for the PE industry in China over the medium term
• We think new deal and exit activity will accelerate strongly from 2Q13 as pricing
expectations adjust, 2012 results become available, IPO markets re-open, and
China’s leadership transition takes effect; PE deal activity (new investments and
PwC exits by both IPO and M&A) will reach new record highs if not in 2013 then in 2014 6

Overall 2012 China M&A decreased 26% by volume and 9% by
value, with only Outbound deals showing growth (in value terms);
we expect M&A activity to rebound in all sectors in 2013, with
Outbound activity continuing to grow especially strongly
Total deal volume and value, from 2008 to 2012

% Diff % Diff
2008 2009 2010 2011 2012
volum value
e 2012 2012
vs. vs.
Volume Value Volume Value Volume Value Volume Value Volume Value 2011 2011
Strategic buyers (US$bn ) (US$bn ) (US$bn ) (US$bn ) (US$bn )
Domestic 3,006 1 50.5 2,7 7 4 1 00.3 2,947 1 40.1 3,262 1 1 7 .6 2,667 88.0 -18% -25%
Foreign 61 4 1 9.3 409 1 1 .3 539 1 8.0 482 1 7 .3 286 9.1 -41% -47%
Total Strategic buyers 3,620 169.8 3,183 111.6 3,486 158.1 3,744 134.9 2,953 97.1 -21% -28%

Financial buyers
Priv ate Equity 365 22.0 254 22.3 425 24.9 502 32.0 332 23.5 -34% -27%
VC 694 1 .7 712 1 .8 1 ,01 1 2.5 903 1 .8 47 3 0.9 -48% -48%
Total Financial buyers 1,059 23.8 966 24.1 1,436 27.4 1,405 33.8 805 24.4 -43% -28%

China mainland Outbound
SOE 27 6.8 45 26.3 64 34.5 48 33.0 48 39.7 0% 20%
POE 99 3.6 99 6.5 1 24 6.4 1 58 9.4 1 43 25.5 -9% 171%
Total China mainland Outbound 126 10.3 144 32.8 188 41.0 206 42.4 191 65.2 -7% 54%

HK Outbound 156 6.6 152 6.2 171 18.8 183 8.2 166 12.8 -9% 55%

Total 4,961 210.6 4,445 174.7 5,281 245.3 5,538 219.3 4,115 199.5 -26% -9%

Source: ThomsonReuters, ChinaVenture and PwC analysis

PwC 7

Deal volumes decreased across all major categories ...

Deal volume by main category
No.
5 000

4 500
206
4 000 126 188 502
365
425
3 500 144 482
614 254 191
539
332
3 000 409
286
2 500

2 000
3 262
1 500 3 006 2 947
2 774 2 667
1 000

500

0
2008 2009 2010 2011 2012
Domestic Strategic Buyers Foreign Strategic Buyers Private Equity Deals China Mainland Outbound


PwC 8

... But China Outbound deal values grew by 54% and now comprise
more than a third of overall M&A activity measured by value, by
far the highest proportion ever

Deal value by main category
US$ billion
250

200 41,0
10,3
42,4
22,0
24,9
19,3
150 32,8 18,0 32,0 65,2

22,3 17,3
11,3 23,5
100
9,1
150,5 140,1
117,6
50 100,3
88,0

0
2008 2009 2010 2011 2012

Domestic Strategic Buyers Foreign Strategic Buyers Private Equity Deals China Mainland Outbound


PwC 9

Strategic buyers

PwC 10

Both Domestic and Foreign-Inbound Strategic buyer deal activity fell to their lowest
levels in the last five years with declines greater than those seen after the global
financial crisis; we think activity will rebound in 2013 as the direction of the Chinese
economy becomes clearer, industry consolidation accelerates, domestic leadership
changes take effect, and foreign economies start to emerge from their stressed states

Strategic buyer deals, from 2008 to 2012
No. US$ billion
4 000 160
150,5
140,1
3 500 140

3 000 120

117.6
2 500 100
100.3 88.0
3 006 3 262
2 000 2 947 80
2 774
2 667
1 500 60

1 000 40

19,3 18,0 17,3
500 20
11,3 9,1
614 539 482
409 286
0 0
2008 2009 2010 2011 2012
Announced Deal Volume Inbound Announced Deal Volume Domestic
Announced Deal Value Inbound Announced Deal Value Domestic
PwC 11

Nearly all industry sectors posted declines, both in terms of
volumes ...

Strategic buyer deal volume by industry sector
No.
4 000

3 500
502 698

3 000 241 877
272
762 450
358 252
2 500 248
384 203
432 253 137
106 264
2 000 369
372 404 395 273
320
1 500 352
522 310 500
446
381 402
1 000 529 575
475 439
428
500
664 539 614 668 570
0
2008 2009 2010 2011 2012
Raw Materials Industrials Consumer Related High Technology
Real Estate Financial Services Energy and Power Others

PwC 12

... And values

Strategic buyer deal value by industry sector

US$ billion
180

160
48,9
140 36,2

120 23,8
9,2 11,3
9,9 11,3 9,5
100 23,0
15,2 11,0
19,4 12,6
80 10,5 18,1 6,3
21,3 8,7 8,6
22,0
14,0 22,2 10,5
60
23,2 12,5
20,3 22,3
40 16,1 13,7
9,0
10,4 5,2
12,2 16,1
20 33,1 11,9 30,3
22,0 16,6
12,7
0
2008 2009 2010 2011 2012
Raw Materials High Technology Financial Services Real Estate
Industrials Consumer Related Energy and Power Others

PwC 13

Japan remains the most active Foreign-Inbound M&A investor for the
second year running, but we saw several deals put on hold in the second
half year of the year in response to the Diaoyu Islands crisis; US and
European deal numbers have steadily declined since their 2010 high ...

No.
650 Foreign strategic buyer deal volume by region of origin
600
550
500
450
400 70
350 70
87 31
300
54 48
250
127 67 79
200 92 28
35 34
150 46
67 89
100 98
124 52
50 73 94
67 66
0 29 23
2008 2009 2010 2011 2012

Japan SE Asia US EU Other Asia Oceania UK Canada Africa Other Europe Latin America Russia British Virgin/Cayman n.a.


PwC 14

... However, the biggest deals are still coming from US and European
buyers; we expect Foreign-Inbound deal activity to rebound 2013 as
European and US economies start to recover allowing MNCs to deploy cash
reserves with greater confidence, implementing their China market entry or
growth strategies
Foreign strategic buyer deal value by region of origin

US$ billion
25

20

15 0,6

4,2 1,3 2,1
1,5
10
1,9 2,9
2,9 0,7
1,2 1,0
1,5 1,2
3,5 1,0 5,2
5 1,3
2,3 4,5 1,3
0,3
0,8 0,8
3,4 0,2 0,4 3,4
1,7 2,1 1,8
0
2008 2009 2010 2011 2012
US UK EU Other Asia SE Asia
Japan Canada Oceania Africa Other Europe

PwC 15

PE and VC fundraising for China investment in 2012 trailed 2011’s record levels by less than we
expected; however, if we look closer we see much fewer individual fund raisings but there were some
large funds raised by many of the leading and established PEs including KKR ($6bn), PAG ($2.5bn),
Hony ($2.4bn), Bain ($2.3bn) and Fountainvest ($1.4bn); there will be winners and losers in the
sector - high quality, professional PEs will thrive, but the bubble is already bursting for many of the
plethora of renminbi funds raised over the last few years

PE/VC fund raising for China investment
* Excludes global funds investing in China

US$ billion No.
60 300
280

50 250
250
21,8
40 200
169
163
30 21,1 150
14,9
39,1 117
20 100
31,8

10 9,3 21,0 20,3 50

4,4 6,6
0 0
2008 2009 2010 2011 2012

Renminbi Fund Size Non-renminbi Fund Size Fund Volume
Source: AVCJ and PwC analysis
PwC 17

2012 was a poor year for PE deal numbers, though deal sizes are trending upwards; we think that
deal volumes will recover starting from 2Q of 2013 and average deal sizes will continue to trend
upwards; however, within China, the days where PEs could throw money at deals and expect a
“rising tide to float all boats” have gone; careful and professional diligence is vitally important; fraud
risk is high; PEs should be prepared to walk away from opportunities if sellers will not accommodate
diligence
Private Equity deals, from 2008 to 2012

No. US$ billion

550 35
32,0
500
30
450 24,9
400 22,0 25
22,3 23,5
350
20
300

250 502
15
425
200
365
332 10
150
254
100
5
50

0 0
2008 2009 2010 2011 2012
Announced Deal Volume Announced Deal Value


PwC 18

PEs tend to target industries that are “on strategy” for China,
including consumer-linked, healthcare, media and entertainment,
technology, and service industries

PE deal volume by industry sector

No.
550

500

450

400

350 54
300
34 90
250
40
88 32
200 45 72 42
23 31
150 60 30 45
50 47
100 33 32 46
20 124
50 98
77 54 73
0
2008 2009 2010 2011 2012
Consumer related Healthcare Media and Entertainment
Industrials High Technology Real Estate
Financial Services Energy and Power Raw Materials

PwC 19

Growth capital deals predominate, but PIPE (private investment in public
equity) deals are important and we are seeing a buy-out market starting to
emerge; we expect the nascent trend towards buy-outs to strengthen over
the medium term
PE deal value by type

US$ billion
35

30 2,7

25
0,6 10,6
1,2 0,6 4,1
20 9,3
4,2
5,1
15
15,6

10 18,6
16,7
15,0 14,2
5
6,1
0
2008 2009 2010 2011 2012

Growth PIPE Buyout


PwC 20

If we look at the same statistics in terms of deal volumes (rather than values) the
dominance of growth capital is very evident; PE has emerged as a key provider of
capital to the liquidity starved private sector of the economy in China with real policy
support - this demand for capital is driving strong market growth and activity

PE deal volume by type

No.
550
16
500

450 13
118
400
15 85
350 18
21
300
68
4
250
51
200
368
329 327
150
246
100 199

50

0
2008 2009 2010 2011 2012
Growth PIPE Buyout


PwC 21

The PE industry in China is notable in that most exits have been by IPO;
predictably, there has been a significant decline in 2012; there is a growing
pipeline of future exits, perhaps more than the market can handle – this will
be a challenge for the PE industry over the next few years
PE/VC backed deal exit volume by type

No.
350

8
300
6
250 83

91
200
5
8
150
84 62
7 212
100
171
44
50 88 98
46
0
2008 2009 2010 2011 2012
IPO M&A - trade M&A - PE


PwC 22

PE backed IPOs in offshore markets such as HK and New York in 2012 were the lowest
in the last three years; we think that PE backed IPO activity must increase markedly in
the short to medium term when capital markets return to normal functioning; the
domestic A-share markets has been and will continue to be an important exit route for
PE despite its many challenges
PE/VC backed IPO exit volume by bourse

No.
250

14
200
30

11 10
11
150
39 18

26

100 4
2
6 11
7 11
27 118
50 7 106

2 4 70
12 48
21
0
2008 2009 2010 2011 2012
Shenzhen Hong Kong Shanghai A NYSE/ NASDAQ Others


PwC 23

Overall, there is a huge overhang of Chinese PE and VC-backed enterprises waiting to
come to market either by IPO or by M&A exit; the industry as a whole is moving into
“exit phase” and the backlog of exits represents a real challenge; it is more than IPO
markets can absorb, and trade and secondary sales by M&A will become more
frequent; the quantum step-up in exit activity will be a key driver of future activity
from this sector
PE/VC deal volume vs. No. of exits

No.
1 500
1 400
1 300
1 200
1 100
1 000
1 011 903
900
800
700 694
600 712
473
500
400
300
91 502
200 425 97
365 332
100 254 89 212 70
51 171
46 88 98
0
2008 2009 2010 2011 2012

PE deals VC deals IPO exit M&A exit

Source: ThomsonReuters, ChinaVenture, AVCJ and PwC analysis

PwC 24

China mainland outbound

PwC 25

Although deal volumes surprisingly showed a small decline, China
Outbound deal values grew by 54% to reach a new record high of US$65.2
billion; we see many more deals in the pipeline and expect this growth trend
to continue strongly with another record year in 2013
China mainland outbound deals, from 2008 to 2012
No. US$ billion
250 70
65,2
60
200

50
42,4
150
40
41,0

32,8 30
100 206
188 191

144 20
126
50
10,3 10

0 0
2008 2009 2010 2011 2012

Announced Deal Volume Announce Deal Value


PwC 26

We are seeing privately owned enterprises (POEs) taking on larger
deal sizes; we think that private sector companies will be key
drivers in the future growth of China Outbound M&A

Strategic buyer deals, from 2008 to 2012
No. US$ billion
250 45
39,7
40
34,5
200
33,0 35

48 48 30
26,3 64
150
25
45 25,5
27 20
100

158 15
143
99 124
10
50 99
6,8 9,4
5
6,5 6,4
3,6
0 0
2008 2009 2010 2011 2012
POE Announced Deal Volume SOE Announced Deal Volume
POE Announced Deal Value SOE Announced Deal Value


PwC 27

Although the state sponsored push to secure energy and resources
is evident from deal value statistics ...

US$ billion
China mainland outbound deals by industry sector
40

0,7
– By value of deals (US$ billion), 2012 vs. 2011
35

30

25
1,9

20
36,2
15

23,1
10 1,4

5 10,7
8,5
4,6 5,4
4,1 1,2 0,2
1,3 1,1 1,1 1,6 2,6
0
Energy and Power Consumer Industrials Financial Services Raw materials Media and Others
related Entertainment
2012 SOE 2012 POE 2011 SOE 2011 POE


PwC 28

... The growing activity of private sector buyers in acquiring industrial technologies
and consumer-linked businesses overseas is an important trend; many of these deals
are aimed at bringing advanced western technologies, know-how, IP and brands back
for use in the Chinese domestic market; we are also seeing some POEs using overseas
M&A to go global in addition to concentrating on the domestic market

No.
60
China mainland outbound deals by industry sector

50 –By number of deals, 2012 vs. 2011

40
37

30 33
10
33 34 13
20
32
28
10 19 22 19 17
16 4 14
13 10
6 5 7 5 3 4
2 3 2 2
0

2012 SOE 2012 POE 2011 SOE 2011 POE

PwC 29

Europe now challenges North America as the most important overseas destination for
Chinese buyers; the importance of mature western markets reflects the search for advanced
technologies and know-how ; Asian deals have declined sharply, primarily due to a fall in
Japan transactions from 16 in 2011 to just 3 in 2012

Outbound M&A deal volume by region of destination 2012 vs. 2011

North America Europe Russia
Asia

8 1
57 57 57 44

25 56

9 4
8 10
27 34

South America Africa
Oceania

2012
2011
Source: ThomsonReuters and PwC analysis

PwC
30

PE is emerging as a player in Outbound deal activity; the TPGs and Bain Capitals of
China will emerge to compete with their global peers; we are already seeing a step-up
in Outbound M&A involving some of the pre-eminent Chinese PEs and the Outbound
trend is happening much faster than many people predicted or even realise

China mainland PE backed outbound deal volume by PE category

No.
30

25

20
20
18
15 7

10
8

5 11
8 8
4 4
0
2008 2009 2010 2011 2012
SWFs Other PEs


PwC 31

Key messages

PwC 32

Overall
• Overall 2012 China M&A decreased 26% by volume and 9% by value, with only
Outbound deals showing growth (in value terms); we expect M&A activity to
rebound in all sectors in 2013, with Outbound activity continuing to grow
especially strongly
China Outbound
• Although China Outbound deal volumes surprisingly showed a small decline, deal
values grew by 54% to reach a new record high of US$65.2 billion comprising more
than a third of overall M&A activity measured by value, by far the highest
proportion ever; we see many more deals in the pipeline and expect this growth
trend to continue strongly with another record year in 2013
• We are seeing privately owned enterprises (POEs) taking on larger deal sizes; we
think that private sector companies will be key drivers in the future growth of
China Outbound M&A
• The growing activity of private sector buyers in acquiring industrial technologies
and consumer-linked businesses overseas is an important trend; many of these
deals are aimed at bringing advanced western technologies, know-how, IP and
brands back for use in the Chinese domestic market; we are also seeing some POEs
using overseas M&A to go global in addition to concentrating on the domestic
market
PwC 33

Domestic and Foreign-Inbound Strategic
• Both Domestic and Foreign-Inbound Strategic buyer deal activity fell to their
lowest levels in the last five years with declines greater than those seen after the
global financial crisis
• We think activity will rebound in 2013 as the direction of the Chinese economy
becomes clearer, industry consolidation accelerates, domestic leadership changes
take effect, and foreign economies start to emerge from their stressed states
allowing MNCs to deploy cash reserves with greater confidence implementing their
China market entry or growth strategies
Private Equity
• In the PE sector there will be sharp consolidation across the industry, and the
backlog of exits represents a real challenge for the sector
• PE has emerged as a key provider of capital to the liquidity starved private sector
of the economy in China with real policy support - this demand for capital is
driving strong market growth and activity; there are exceptionally strong
tailwinds for the PE industry in China over the medium term
• We think new deal and exit activity will accelerate strongly from 2Q13 as pricing
expectations adjust, 2012 results become available, IPO markets re-open, and
China’s leadership transition takes effect; PE deal activity (new investments and
PwC exits by both IPO and M&A) will reach new record highs if not in 2013 then in 2014 34

Data compilation methodology:
Key messages - disclaimer
Statistics contained in this presentation and the press release may vary from those contained in previous
press releases. There are three reasons for this: ThomsonReuters and ChinaVenture historical data is
constantly updated as deals are confirmed or disclosed; PricewaterhouseCoopers has excluded certain
transactions which are more in the nature of internal reorganisations than transfers of control; and
exchange rate data has been adjusted.
Included Deals Excluded Deals
• Acquisitions of private/public companies resulting in change of • Property/real estate for individual properties
control • Rumoured transactions
• Investments in private/public companies (involving at least 5% • Options granted to acquire an additional stake when not 100%
ownership) of the shares has been acquired
• Mergers • Any purchase of brand rights
• Buyouts/buyins (LBOs, MBOs, MBIs) • Land acquisitions
• Privatisations • Equity placements in funds
• Tender offers • Stake purchases by mutual funds
• Spinoffs • Open market share buyback/retirement of stock unless part of
• Splitoff of a wholly-owned subsidiary when 100% a privatisation
sold via IPO
• Balance sheet restructuring or internal restructuring
• Divestment of company, division or trading assets resulting in
• Investments in greenfield operations
change of control at parent level
• Going private transactions
• Reverse takeovers
• Re-capitalisation
• Joint Venture buyouts
• Joint Ventures
• Receivership or bankruptcy sales/auctions
• Tracking stock
PwC
35

© 2013 PricewaterhouseCoopers Limited. All rights reserved. “PwC” refers to PricewaterhouseCoopers
Limited or, as the context requires, the PwC global network or other member firms of the network, each
of which is a separate legal entity.

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