Merger and acquisition activity in China is set to rebound in 2024 after four straight years of decline, as steady economic growth and a favorable policy environment support dealmaking.
The number of M&A deals in the world's second-largest economy slipped to 2,574 in 2023 from 2,598 the year before, according to data compiled by S&P Global Market Intelligence. This was the lowest total since 2019, when 2,513 deals were closed, a low for the decade. Aggregate transaction value of all M&A deals Market Intelligence tracked similarly declined, falling to 1.28 trillion yuan in 2023, the lowest since 2018.
"The economic and M&A downturn the past few years have caused a big backlog," said Dustin Ball, partner and Asia-Pacific financial services strategy leader at EY Parthenon, and "therefore potential economic recovery will fuel active dealmaking, including some high-profile deals."
Proactive policy
China expects its economy to grow about 5% in 2024, Premier Li Qiang said March 5 at the weeklong National People's Congress Meeting, commonly known as the Two Sessions meeting that sets the government's economic priorities for the year. The economy grew 5.2% in 2023, slightly higher than a similar goal for last year. But some sectors, especially real estate, which accounts for nearly one-fourth of China's gross domestic product, are facing a slowdown. China's priorities for 2024 include "strengthening and improving efficiency of proactive fiscal policy" and "prudent monetary policy."
The State Council Of the People's Republic Of China, Beijing's top executive body, in January announced revised regulations for M&A to support activity. Among the new measures was a higher revenue threshold for merger deals to be filed with the regulator.
The move "should ease the regulatory pressure regarding antitrust and uncertainty for the parties involved and improve deal efficiency," Ball said. The authorities can still intervene and investigate any M&A transaction if considerable competition risk is identified, Ball added.
"China's M&A ecosystem continues to evolve, underpinned by several favorable factors," said Chen Jie, global head of M&A at China International Capital Corp. Chen listed factors such as the potential easing in global monetary policy and the registration-based IPO system in China among factors that would support deal activity.
China officially rolled out its across-the-board registration-based IPO system in early 2023. The new system relies on disclosures, instead of the previous approval-based practice that put greater emphasis on the company's prior performance.
The full implementation of the registration-based system, together with policies like extending the financial information validity period and allowing convertible bonds as one way of consideration payment, has improved the overall execution efficiency of deals. It also boosted listed companies' confidence to conduct M&A deals, Chen said.
Deal hotspots
In 2023, the materials and technology, media and telecommunications sectors each contributed three of the top 10 M&A deals by value, according to Market Intelligence data, while the rest came from financial, industrial and utilities. The consumer sector made up 14.5% of the total number of deals, declining from 16.9% in 2022, the data showed.
The energy and utilities sector, where the value of strategic acquisitions increased by 15% in 2023, will likely remain a hotspot for M&A activity in 2024, Ball said. "Energy transition continues to drive business transformation as companies reposition themselves to tackle sustainability challenges, noticeably in the electric vehicle space."
Other candidates could be from technology, pharma and life sciences sectors, Ball said.
M&A in China's technology sector is experiencing robust growth, and listed companies have contributed nearly 60% of technology M&A in terms of deal value over the past five years, according to CICC's Chen. "The proportion is still increasing," Chen added.
As of March 5, US$1 was equivalent to 7.20 Chinese yuan.