Grant Thornton Survey: Nearly half China businesses plan M&A in the next three years

An increasing number of China businesses are planning to grow through acquisition according to the Grant Thornton International Business Report (IBR). In its latest global study, the proportion of Chinese respondents anticipating making an acquisition in the next three years increased to 45% this year, up 19% compared to the level of 26% twelve months ago. It is also higher than the global average of 34%.

Dongdong Liu, advisory partner of Grant Thornton Jingdu Tianhua, says, “At a time of improving economic and financing conditions, businesses are again looking towards acquisitions as a means of growing revenues as they shift their mindset from survival to strategic growth. Businesses in China, driven by the desire to access new markets and acquire new technology or established brands, are now back on the acquisition trail when they retain a healthy cash flow.”

Businesses plan overseas M&A hit record high

The survey also shows that 26% businesses in China are planning a cross-boarder acquisition in the next three years, which is the highest level since 2008. Among the BRIC countries, Indian companies lead the way with 40% of the respondents intending to go through overseas M&A transactions. China businesses follow in the second place. Businesses in Russia have the lowest intention for overseas M&A with a proportion of 14%.

When asked about the key drivers behind their M&A plans, China businesses put building scale (85%), accessing new geographic markets (79%) and acquiring new technology or global brands (75%) as the top three reasons.

Dongdong Liu points out, “In regard to the experiences of overseas M&A, Chinese companies are still behind their counterparts in India. Chinese companies are moving forward over their past successful and unsuccessful cases. In order to successfully acquiring an overseas company, China businesses should exert in due diligence, thoroughly understand the local legal structure and their culture. In the post acquisition stage, they should make effort to integrate the two company’s culture, keep their core staff and invest in brand building. The whole process is to seek a balanced solution in the aspects of strategy, finance, control and operation.”

More businesses eye IPO  PE to become mainstream source for growth capital

According to the survey, 24% of the businesses in China expect to undergo a public listing in the next three years, a great increase from 11% of last year. China businesses’ willingness for IPO ranks No.2 on global level, reflecting their strong confidence in economy and stock market.

In the meantime, private equity is becoming a mainstream source of capital for Chinese companies under recent booming PE market. The survey shows that 20% of China businesses are considering private equity as a source of growth capital in the next three years, which is on the same level with North America market (20%) and higher than global average (18%). As an alternative channel for financing, private equity is more and more recognized by China businesses. Other traditional financing channels include retained earnings (57%) and bank finance (42%).