China M&A: Resilience in the Year of the Dragon

As we approach the Year of the Dragon, we can but hope that the beneficial influence for which the animal is renowned is felt widely across all markets.

China’s central government has made it clear that economic stability and growth are top priorities for 2024.  This backdrop along with current industry trends have a number of implications.

In outbound M&A, existing levels of activity should continue among leading state-owned enterprises seeking to secure natural resources vital for the energy transition.  Some will also be looking to acquire new technology, although this may rub up against lingering concerns from Western governments.  After a torrid COVID, the private companies appear to be regaining some appetite for investing overseas, provided they already have cash or are able to secure financing.  The automotive, general industrials and healthcare sectors appear to be most lively.

Inbound M&A should recover from recent low levels, as the Chinese market remains too big to ignore for many multinationals.  They are expected to continue investing, albeit more selectively.  They are increasingly targeting the Chinese market (“China for China”) as opposed to manufacturing for export, given concerns with secure supply chains.  Financial sponsors, too, are likely to be more active with valuations at attractive levels.

As for restructurings, it is expected that these will continue and grow in number among both multinational as well as privately held firms.  These should not necessarily be seen as exercises in “decoupling”, but more as a push to rationalise portfolios, reduce overweight holdings, realise value and even help relieve financial pressure at group level induced by challenges outside China.

The Year of the Dragon, therefore, should reveal many opportunities in China M&A if the creature’s legendary association with luck and success holds true.