Posts

Global Pandemic Slows China Deal Making Efforts in Year 2020

Deal making is a mutually binding contract or communication between two or more parties who want to do business. The deal is usually carried out between a seller and a buyer to exchange items of value such as goods, services, information, and money.

The global coronavirus pandemic has so far not triggered a Chinese buying spree of distressed assets but further slowed the pace of outbound acquisitions by Chinese companies in 2020.

According to Baker McKenzie’s 7th annual analysis of Chinese outbound investment trends, conducted in partnership with Rhodium Group, completed Chinese outbound mergers and acquisitions totalled just $29 billion in 2020, down almost half from $53 billion in 2019 and a record high of $139 billion in 2017. This is the lowest figure since 2008. Worldwide, only completed Chinese acquisitions in Latin America in 2020 kept pace with the previous year.

Adding greenfield investment to completed mergers and acquisitions, North America and Europe attracted a combined total of $15.2 billion of Chinese FDI. Completed investment in North America outpaced completed investment in Europe for the first time in five years, fuelled by the completion of several billion-dollar transactions. Investment in Europe was more fragmented and consisted of smaller transactions spread across geographies and industries.

All other regions of the world also saw declines in Chinese mergers and acquisitions in 2020 compared to 2019, except for Latin America where completion of a number of energy and utilities acquisitions announced in 2019 in Brazil, Chile, and Peru kept year-over-year activity flat compared to the previous year. Acquisitions in Asia fell by a third to $7.1 billion.

After the hurricane

China’s reintroduction of outbound investment controls, increasing regulatory scrutiny in many parts of the world over Chinese investment, geopolitical tensions, and the COVID-19 pandemic have all created headwinds for investment in recent years. But improving political and macroeconomic conditions seem likely to change this downward trend for Chinese investors in this year. The mergers and acquisitions pipeline remains low in early 2021 but China’s favourable macroeconomic conditions, a more predictable regulatory setup abroad and a less contentious geopolitical environment could help increase deal appetite and support a rebound in Chinese deal making globally, as well as continued growth in investment into China.

The drop in completed Chinese outbound mergers and acquisitions in 2020 stands in contrast to mergers and acquisitions in the other direction. Foreign mergers and acquisitions into China rebounded strongly in 2H 2020 and reached full-year levels similar to 2019. China’s relatively early and rapid recovery from the impacts of COVID-19 have made it an attractive target for foreign investors looking for near- and intermediate-term economic growth.

North America: investment edges up

In 2020, Chinese investors completed $7.7 billion worth of deals in the United States and Canada, up from $5.5 billion completed in 2019. This came even as regulatory scrutiny and tensions with China were elevated in both countries. California, Ontario, Delaware, North Carolina, and Massachusetts were the North American regions seeing the most Chinese investment.

Entertainment, health and biotech, and natural resources were the top sectors in North America. Billion dollar deals like Tencent’s stake in Universal Music and Zijin’s stake in Canada’s Continental Resources drove high industry concentration in North America in 2020.

Canada accounted for a larger share of total Chinese FDI in North America than in previous years, reflecting momentum in mining deals and persistently low US investment.

Chinese companies continued to make major asset divestitures in North America in 2020. For example, Platinum Equity agreed to acquire Ingram Micro from HNA for $7.2 billion in December 2020. And in September, PetroChina dissolved its Alberta shale gas joint venture project with Ovintiv after outing up $2.2 billion for a 49.9% stake in the project in 2012.

The United States attracted more greenfield investment from China in 2020 than Canada. However, total Chinese greenfield investment in the United States was still modest at around $700 million. The biggest greenfield deals in the United States included expansions of existing US footprints for companies like Haier-owned GE Appliances, Fuyao Glass, and Geely-owned Terrafugia.

Chinese companies nearly halve investment in Europe

Completed Chinese FDI in Europe continued its downward trajectory in 2020 to $7.5 billion from $13.4 billion in 2019, registering a lower total than in North America for the first time since 2016. Compared to North America, Chinese mergers and acquisitions in Europe targeted medium-sized targets across a broader spectrum of industries. Chinese greenfield activity in Europe in 2020 was more robust than in North America, with nearly $1 billion in completed investment during the year. There were more midsized transactions in Europe dispersed across industries such as real estate and hospitality, automotive, and energy.

As with investment in North America, outbound capital controls and increased scrutiny of Chinese investment in host countries presented headwinds, as did the coronavirus pandemic. For example, FAW Group discontinued talks to acquire Italian truck maker Iveco for €3 billion during the year, with FAW citing the pandemic as a factor in its decision.

Germany, France, Poland, Sweden, and the United Kingdom received the most investment. Investment levels in Germany reverted to the roughly $2 billion normal range typical before 2019. Chinese investment in France mounted a comeback in 2020 after falling precipitously in 2019 thanks to a few major completed acquisitions. Investment in Poland focused on a single major warehouse portfolio acquisition, while in Sweden there continues to be sustained Chinese investment above historical averages.

With the uncertainty of Brexit, persistent Chinese restrictions on outbound transactions in real estate and other service sectors, and increasing tensions with China, the United Kingdom fell to the fifth among European countries this year with only about $427 million of investment through a few smaller completed mergers and acquisitions like Jingye Group/British Steel. But a major billion-dollar Huawei greenfield R&D investment announced in June suggests Chinese firms are still interested in the United Kingdom and will bolster future totals if it comes to fruition. Levels of Chinese investment in Italy, Ireland and the Netherlands also fell to very low levels.

Compared to North America, Chinese mergers and acquisitions in Europe targeted medium-sized companies across a broader spectrum of industries. The top deals by investment size included targets like a warehouse network in Poland and a few other Central European nations, Germany’s Steigenberger Hotels AG, France’s Asteelflash, National Electric Vehicle Sweden, and France’s Maxeon Solar Technologies.

EU-China Investment Deal

The proposed CAI Deal will facilitate minor additional opening of the European Union market to Chinese investors. The European market was already very open to Chinese and other foreign capital. The CAI commits the EU to further open its energy sector, with the focus on retail and wholesale, but excluding trading platforms.

The CAI will not limit European Union member states in deploying defensive measures including FDI screening, legislation to address subsidy distortions in the Single Market, the adoption of a more restrictive procurement regime and its push to reduce risks related to 5G.

Outlook brightening?

Additionally, China’s current account surplus ballooned in 2020 as global travel halted Chinese overseas tourism spending while Chinese exports recovered before many other nations impacted by the coronavirus pandemic. This has put appreciating pressure on the renminbi and is creating an opportunity for China to allow more capital outflows, including outbound mergers and acquisitions.

Financial Services Firm Tilney Targets Smith & Williamson for Merger

Tilney is a financial planning and investment firm with head offices in Mayfair, London. The company is part of the Tilney Group and offers financial planning, investment management and investment advisory services to private clients.

The board of Tilney has confirmed that it is in exclusive discussions with Smith & Williamson about a potential combination of the two businesses.

Smith & Williamson confirmed that talks are underway and that the accounting arm of the firm is part of the ongoing talks.

Smith & Williamson, founded in Glasgow in 1881, is ranked at number eight in the Accountancy Daily Top 75 Firms annual survey. The firm’s business model is based on a mix of financial and professional services, with a significant managed funds business.

Its financial results, released in July, showed operating income increased 4.3% year-on-year to £278.1m while adjusted operating profit increased by 4.8% to £48.4m.

Professional services income, including revenue from tax and business services was up 6.5% to £104.7m, although the firm changed its reporting lines this year.

The funds under management and advice service line increased by 6.5% year-on-year to £21.4bn.

The bid from Tilney, reported in the Sunday Times, comes two years after listed wealth manager Rathbones tried to buy Smith & Williamson. In August 2017 Rathbones, which manages over £32bn of client funds through Rathbone Investment Management proposed a merger, but talks were called off the following month.

At the time, Smith & Williamson said it intend to pursue a public listing and confirmed this view on publication of its latest results.

If the deal goes ahead, the combined business would have about 250 financial planners, 240 investment managers and more than 100 partners in professional services.

There has been a flurry of mergers and acquisitions among wealth management firms in recent years, driven partly by increased regulatory supervision and the need for economies of scale.

BSI announces acquisition of US firm AppSec Consulting

BSI, a business improvement company, today announced the acquisition of AppSec Consulting – a cybersecurity and information resilience (CSIR) company – located in San Jose, California. This will see AppSec Consulting become a part of BSI’s CSIR offering and will operate under the name “AppSec Consulting – a BSI Professional Services Company”.

The acquisition of AppSec Consulting further strengthens BSI’s CSIR services in the United States – one of the company’s key markets.

Established 14 years ago, AppSec Consulting focuses on the US cybersecurity sector, servicing a wide range of clients across the country. The business was initially focused on web application security, penetration testing, and developer training and has since successfully diversified into providing strategic cybersecurity, data privacy, and a range of governance, risk and compliance advisory services.

Howard Kerr, Chief Executive at BSI, said: “This acquisition is reflective of our key strategic aim to expand our cybersecurity and information resilience offering, building a centre of excellence for organizations globally. AppSec Consulting is one of the most professional companies to emerge in the last 20 years. Their services perfectly complement those offered by the BSI Cybersecurity and Information Resilience teams in the UK and Ireland, which together with their reputation for excellence in client service, makes this a perfect match.”

Brian Bertacini, President at AppSec Consulting, commented: “Merging with BSI is the natural next step for AppSec Consulting, providing huge opportunity for both our clients and employees alike. We are delighted to benefit from BSI’s global reach and broader range of services, which – when combined with our proven cybersecurity expertise – will allow us to further expand and flourish.”

Top 10 Biggest M&A Deals Of 2017

In corporate finance, mergers and acquisitions (M&A) are transactions in which the ownership of companies, other business organisations, or their operating units are transferred or consolidated with other entities.

Mergers and acquisitions never reached the levels our experts predicted, but the year is still shaping up to be the best year for United States deal activity.

Although most M&A deals ultimately fail to create value for shareholders down the road, it’s hard to say that the economy or markets are truly healthy without them — and that’s not just because investment bankers and corporate lawyers need to get paid.

Businesses don’t do much wheeling and dealing when markets and the economy are in a slump. A pickup in M&A deal activity is a sign of confidence — and investor psychology are as critical as anything to ensuring better times down the road.

Despite notching one of the biggest M&A deals on record, United States M&A deal activity cleared billions, according to Dealogic. That’s a 39% increase over the same period a year ago — and the highest nine-month total since 2008.

Top 10 Biggest M&A Deals Of 2017

  1. Applied Materials (AMAT) Buys Tokyo Electron (TOELY), $10 billion
  2. Spectra Energy Partners (SEP) Buys Spectra Energy Corp.’s (SE), $9.8 billion
  3. American Airlines (AAMRQ) Buys US Airways (LCC), $11 billion
  4. Thermo Fisher Scientific (TMO) Buys Life Technologies (LIFE), $13 billion
  5. Liberty Global (LBTYA) Buys Virgin Media, $16 billion
  6. Publicis Groupe (PUBGY) Buys Omnicom Group (OMC), $17 billion
  7. Comcast (CMCSA) Buys NBC Universal Media from General Electric (GE), $17 billion
  8. Michael Dell and Private Equity Firm Silverlake Buy Dell, $25 billion
  9. Berkshire Hathaway (BRK.B) and 3G Partners Buy H.J. Heinz, $23 billion
  10. Verizon (VZ) Buys Out Verizon Wireless Stake from Vodafone (VOD), $130 billion