Global Downturn Sparked Increased Chinese M&A Spending in 2011

While economic and debt woes in Europe and North America played havoc with the world’s markets for much of last year, many of those in China’s corporate world saw the financial storm as an opportunity to set their sights on mergers and acquisitions of companies abroad. Similarly, several dozen foreign companies also took the opportunity to invest in Chinese peers last year in order to increase their presence in the nation’s lucrative growing markets.

China’s mergers and acquisitions market disclosed 985 transactions involving a combined $66.92 billion in 2011, up 86% and 92.3% respectively from the year before and reaching a six-year high, according to a report released by Zero2IPO.

A total of 1,157 transactions were recorded during the past year – 110 of which were disclosed to be valued at a combined $28.1 billion – which involved Chinese companies purchasing stakes in foreign peers, up 93% in number and 112.9% in value from 2010, the report noted.

China’s energy and mining industry was the most active during last year in terms of M&A spending, with 153 transactions valued at $21.98 billion in 2011, representing 13.2% and 32.8% respectively of the number of transactions and their total value. Sinopec, Asia’s largest oil company, lead the way in this industry with multiple overseas acquisitions in 2011, including a $4.8 billion deal to purchase 30% of Portuguese oil company, Galp; a $2.9 billion deal to purchase Canada’s Daylight Energy; and a $1.77 billion deal to purchase Australia’s Pacific LNG. Sinopec was also involved with ENN Energy last year in a $3.41 billion deal which resulted in the the two companies acquiring 43.1% and 52.68% stakes respectively in Hong Kong-based China Gas Holdings.

China’s real estate industry came in second last year, seeing 113 M&A transactions valued at $5.45 billion, accounting for 9.8% and 8.1% respectively of the number of transactions and their total value. Machinery manufacturing snatched the third spot with 95 transactions valued at $2.75 billion, accounting for 8.2% and 4.1% respectively of the number of transactions and their total value.

On the foreign side, there were 66 transactions involving non mainland-based companies buying Chinese firms last year, Zero2IPO data shows, up 50% from 2010. Of these 66, 41 transactions were disclosed involving a combined $6.86 billion, up 209.2% from a year earlier, although Nestle’s $1.62 billion takeover of 60% of Chinese sweets maker Hsu Fu Chi boosted the aggregate amount, the report added. Nestle’s also purchased 60% of Yinlu, a Chinese food maker, for an undisclosed amount in 2011. Similarly, several other foreign food companies invested big in Chinese peers last year, including Yum! Brands Inc which payed $587 million for the well-known Chinese hotpot chain Little Sheep. In recent years, foreign food brands especially have been moving to increase their M&A spending on Chinese competitors in order to gain access to local distribution networks, which many see as critical in order to succeed in the nation’s food and beverage market.