Finnish game company Supercell Co-founder and CEO Ilkka Paananen and Martin Lau, President of Tencent, shake hands after Tencent announced it had agreed to buy Supercell Oy from Softbank. (Photo : Getty Images)
China is likely to beat the United States as top acquirer of foreign companies this year, if Chinese enterprises continue with its buying spree and outbound merger and acquisitions (M&A) overseas, according to a Forbes article.
Chinese firms have been investing money not only on trans-continental highways and railways, new cities, industrial and economic zone but also in mergers and acquisitions with major American and European companies at a record pace, according to the article.
By the end of August, China had already exceeded its yearly record for outbound M&A investment, with 173 deals worth $128.7 billion, a recent report by Mergermarket Group said.
"China has seen continuous annual growth in both outbound deal size and deal volume in the recent ten years," Yiqing Wang, Mergermarket's China editor said. "However, 2015 and 2016 have witnessed an even more aggressive growth spree."
The acquisitions made by Chinese companies reflect the country's current shift from export-driven manufacturing towards high-end, high-tech R&D and domestic consumption, as companies become more interested in foreign companies involved in technology, chemical, industrial and consumer services instead of the usual resource and energy sectors.
Aside from the high number of acquisitions, Chinese firms were also involved in a huge number of takeovers of Western companies. ChemChina made the largest overseas acquisition when it acquired the Swiss pesticide and seed company Syngenta AG for $43 billion.
Tencent acquired Supercell, the Finnish mobile game developer, for $8.6 billion, while U.S. aluminum producer Aleris was bought by Zhongwang International for $2.3 billion. Ingram Micro Inc was purchased by HNA Group for $6.3 billion while Haier Group paid General Electric with $5.4 billion for its home appliance division. Chinese investors are also interested in acquiring the Chicago Stock Exchange.
This year, Chinese M&A investment focused on Europe, with $76.5 billion set aside for the acquisition of European firms. As of June, Chinese companies have acquired 24 German companies or about one per week.
Wang said that the buying up of foreign companies by Chinese companies was aimed at gaining more development skills and not to bail out of China.
"We found that majority of the deep pocket Chinese acquirers aim to obtain high-end, world-class technology to take back home to add on to their current product development skills," Wang added.
The move was also part of China's "Made in China 2025" initiative, which seeks to promote and improve the country's manufacturing capabilities, drive innovation, and establish ownership of key technologies. It also complies with the government's "Going Out policy," which aims to encourage local companies to make investments abroad, make use of their foreign reserves, set up consumer bases, as well as expand the country's international political and economic influence, which can be done through M&A.
As China's domestic economy levels off and the government provides more support for outbound investment, it is time for Chinese companies to venture overseas and continue with more acquisitions.
"After all," Wang concluded, "it's just the beginning of their globalization spree."
