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
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
"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
"It's not just the numbers that are different," notes Knibutat, "Buyers
from opposite sides of the border have approached China in dramatically
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
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
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1 Source: Kennedy;"Business Advisory Services Marketplace 2009-2011" ©BNA
Subsidiaries, LLC. Reproduced under license.
2 Source: Acquisitions Monthly Awards 2010
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