World spotlight on China not encouraging UK businesses, but
China is on shopping spree
Publicity surrounding the Olympics has done little to encourage
UK businesses to seek M&A deals in China during the first
quarter of the year, with the UK dropping out the top ten acquirer
nations for the first time since 2000, according to the latest
analysis by Grant Thornton Corporate Finance.
While the UK has announced just eight M&A deals in China
worth £25 million during Q1 2008, the US has leaped ahead, with 39
deals worth more than a quarter of a billion (£348 million)
announced in the same period. Also particular active is Singapore,
announcing 29 deals worth £156 million last quarter. Rounding out
the top ten were nations as diverse as South Korea, Switzerland and
Canada.
In 2007, the US announced a total of £2.39 billion worth of
deals in China, compared with just £213 million by UK firms. In
total foreign firms announced £11.39 billion worth of M&A deals
last year.
Stephen Weatherseed, Head of Grant Thornton's China Group, said
that while the US remained consistently active in developing its
business links with China, UK businesses were often placing China
in the 'too hard basket', to their detriment.
"Be it positive or negative, the world is now focused on China,
and the opportunities it offers. While the Chinese economy is now
remarkably more developed than just a decade ago, it is still in
almost every sense a developing nation, and therefore has huge
growth potential for UK businesses willing to invest time, money
and energy."
But while the UK's attention towards China has fallen, the
announced purchase of a share in Rio Tinto by a Chinese owned
consortium means China was the most active foreign buyer in the UK
last quarter, announcing and completing the £7.18 billion deal.
Weatherseed said there was also a range of direct and indirect
investment in the UK from China's Sovereign Wealth Funds (SWFs),
with the state active in seeking out a diverse national
portfolio.
"China has built huge surpluses during its economic boom, and
also through its currency controls. For the right organisations,
this surplus, in the form of SWF investment, could offer a
liquidity injection that may be harder to obtain through
traditional lenders in the current credit climate."
Chinese businesses are certainly acquiring more offshore
interests than ever before, with the amount of announced foreign
acquisitions by Chinese companies in Q1 (£11.91 billion) almost
equalling the total deal value of 2007, and already surpassing the
total deal value between 1998 and 2004.
Weatherseed said this showed no signs of abating, and while the
West was struggling with the credit crunch, China would be in a
strong position to pick up the bargain companies that inevitably
emerge in times of a downturn.
"China is on a shopping spree fuelled in large part by high
levels of consumer spending in the West. Expect Chinese SWFs or
private equity groups backed by Chinese equity to acquire some big
name brands in Britain during the final part of the decade,
particularly those in minerals and fossil fuels, which remain top
of the shopping list in China."