Canadians find the right balance of deal-making in China says PwC; Past nine months tops height of M&A boom in 2007

Canadians pursuing strategic buys for the long term, not being swept up in a Yuan fundraising boom

TORONTO, Sept. 29, 2011 /CNW/ - Canadian entities have announced $1.42 billion worth of acquisitions in China over the last nine months, a 158% increase over annual 2010 dollars volumes, says PwC's latest M&A report to clients, the Capital Markets Flash. This upward trend outpaced the broader Canadian M&A market over the same period, where M&A dollar volumes remained 5% higher than 2010 and 33% less than the 2007 peak.

Kristian Knibutat, PwC's Canadian Deals Leader says, "The value of Sino-Canadian outbound deals has been staggering—year to date we have observed a 1,287% increase over aggregate annual deal values at the height of the global M&A boom in 2007. Canadian buyers have moved off the sidelines to pursue strategic acquisitions with a view to the long-term."

"This is, however, an isolated rally," says Knibutat, referring to four large transactions led by Canadian giants Power Corporation of Canada, The Bank of Nova Scotia, CPP Investment Board and Bank of Montreal which announced $1.3 billion worth of acquisitions in China year-to-date—representative of 98% of deal value. "Each of these deals was supported by sound long-term rationale and was highly strategic to the acquirer," the report says.

By deal value, Canadian dealmakers continue to be outpaced by their US counterparts, who have announced $4.7 billion in China-bound acquisitions year-to-date.

"It's not just the numbers that are different," notes Knibutat, "Buyers from opposite sides of the border have approached China in dramatically different ways."

The report highlights that, since 2007, US buyers have hailed from both the public and private markets across a wide range of industry sectors. These buyers are targeting niche emerging (mainland) Chinese markets. In contrast, the majority of China-bound Canadian buyers were "blue chip" financial, real estate and mining entities. Canadian buyers also typically preferred well-established targets in the more "westernized" Hong Kong (as opposed to mainland China).

Notably absent from the Canadian buyer universe was private equity.

"Canadian funds have taken a cautious approach to China," says Knibutat. "By and large, Canadian funds prefer to penetrate China via investment into funds of funds or co-investing alongside a US lead (as opposed to direct investment)."

The PwC report notes that some analysts are suggesting recent regulatory reforms have encouraged a plethora of yuan-denominated fundraising activity in China. Some argue that there may be a surplus of capital chasing Chinese deals. "In light of recent comments about fundraising levels, the Canadian private equity approach, prudent, but opportunistic, appears to be one that is well thought out and effective," says Knibutat.

During the last decade, Chinese entities have been significantly more acquisitive in Canada than vice-versa. In fact, at the height of the global M&A boom in 2007, the value of Chinese acquisitions in Canada was nearly 28 times the value of Canadian acquisitions in China. "Four deals do not a trend make," notes Knibutat.

Chinese authorities have been explicit in their 12th five-year plan that acquisitions of industrial know-how, technology and consumer brands will be a vital ingredient to the success of rebalancing the Chinese economy.  This new type of buy side activity, coupled with continued resource investments, will mean that inbound deal volumes from China will likely outpace outbound volumes for some time.

Says Knibutat in the report: "We would suggest most Canadian entities to continue following a cautious but calculated approach to China-bound acquisitions. Markets are questioning the trajectory of growth in China, not necessarily the growth story itself. Canadians would be well advised to consider such risk-mitigating strategies as the 'global joint venture model': Chinese-Canadian partnerships that offer each player a mutual advantage in working together on a global basis, not necessarily driven by acquiring China-exposure only."

Here is a link to the full report, www.pwc.com/ca/cmf which includes an information supplement about the types of deal structures that Canadians can utilize to complete acquisitions in China.

Follow PwC on Twitter at @PwC_Canada_LLP and on Facebook at http://www.facebook.com/pwccanada.

About PwC's Deal Team
PwC's Deal Team (www.pwc.com/ca/deals) helps clients to achieve deal success—from concept to close and beyond. As part of the world's largest Transaction Advisory practice1, and with our global Corporate Finance group being 2010 Upper Mid Market M&A Advisor of the Year2, the PwC Canada Deals Team is your gateway to an exciting new world of emerging M&A opportunities.

About PwC
The firms of the PwC network provide industry-focused assurance, tax and advisory services to enhance value for clients. More than 161,000 people in 154 countries in PwC firms across the PwC network share their thinking, experience and solutions to develop fresh perspectives and practical advice. In Canada, PricewaterhouseCoopers LLP, an Ontario limited liability partnership, and its related entities have more than 5,700 partners and staff in offices across the country. See www.pwc.com/ca for more information.

"PwC" is the brand under which member firms of PricewaterhouseCoopers International Limited (PwCIL) operate and provide services. Together, these firms form the PwC network. Each firm in the network is a separate legal entity and does not act as agent of PwCIL or any other member firm. PwCIL does not provide any services to clients. PwCIL is not responsible or liable for the acts or omissions of any of its member firms nor can it control the exercise of their professional judgment or bind them in any way.

Note to Editors: PwC changed its name from PricewaterhouseCoopers to PwC in the fall of 2010. "PwC" is written in text with a capital "P" and capital "C." Only when you use the PwC logo is the name represented in lower case.

1 Source: Kennedy;"Business Advisory Services Marketplace 2009-2011" ©BNA Subsidiaries, LLC. Reproduced under license.

2 Source: Acquisitions Monthly Awards 2010

"PwC" refers to PricewaterhouseCoopers LLP, an Ontario limited liability partnership, which is a member firm of PricewaterhouseCoopers International Limited, each member firm of which is a separate legal entity. 

SOURCE PwC

For further information:

David Rowney
Tel.: 416 365 8858
Email: david.rowney@ca.pwc.com 

OR:
Kiran Chauhan
Tel.: 416 947 8983
Email: kiran.chauhan@ca.pwc.com

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