Grant Thornton: Growing appetite for M&A in China

The latest research from the Grant Thornton International Business Report (IBR) finds strong M&A activity and set to grow further over the next 12 months. Businesses' M&A plans, both current and forecast, are becoming more focused as the quality of available targets improves and is matched by a five-year high in the willingness of potential vendors to contemplate a sale.

M&A activity forecast in China for 2015 up of 10%

“To buy” and “to sell” are key elements for a successfulM&A market. The IBR reveals that the year of 2014 witnessed an activeM&A market in China. 26% of business leaders seriously considered at leastone acquisition opportunity, up from 10% in 2013. Meanwhile, the M&Aactivity forecast for 2015 increased to 20%, a rise from 10% over the pastyear. While the willingness of potential vendors grows, the percentage ofbusinesses planning to sell up is also on the rise. The proportion ofbusinesses expecting a change in ownership in the next three years rose from 6%to 9% over the past year

Confidence in the ability to fund transactions is vital foran active M&A market. Whilst retained earnings (52%) remain a significantsource of funding, the proportion of businesses planning to use bank debt tofinance deals has risen to 51% from 22% in the last year. The percentage ofbusinesses expecting to finance growth through private equity also increasedfrom 8% to 24%. Meanwhile, despite of the recovery of IPO market, China hasseen no increase in the businesses planning to finance deals through publiclisting (14%).

Xu Hua, CEO of Grant Thornton China, says: “Theyear of 2014 witnessed an M&A boom. Both the number and the total volume oftransaction broke a new record. With the further reform of stateownedenterprises and businesses’ increasing ‘going out’, China’s domestic andoverseas M&A markets are both expected to be more active in 2015. CBRCissued the revised edition of Guidelines for Risk Management by CommercialBanks of Loans Extended for Mergers and Acquisitions, easing some M&Afinancing restrictions which had troubled businesses. This benefits thebusinesses which starve for financial support for M&A activities.”

The greatest appetite for acquisition in North America

From a global perspective, theIBR reveals that 33% of businesses are planning to grow through M&A overthe next three years, a steady rise from 31% in 2013. North American businessleaders remain the most bullish (45%), ahead of Latin America (38%), Europe(32%) and Asia Pacific (22%). Meanwhile, 43% of business leaders seriouslyconsidered at least one acquisition opportunity over the past 12 months, upfrom 39% in the previous period. The proportion of businesses expecting achange in ownership in the next three years rose from 11% to 14% over the past year.Finland (38%) is the most bullish for sell, followed by Latvia (32%) and SouthAfrica (29%).

Regardingto different sectors , mining & quarrying industry is the most bullishindustry with 60% of businesses planning acquisition in the next three years,ahead of financial service (53%), electricity, gas & water supply (53%),and agriculture, hunting, forestry and fishing (44%). Transport is the mostcautious (26%) sector.

For more information, please read the full report