Survey by MVision and London Business School reveals private equity’s attitudes to Chinese outbound acquisitions

Chinese money to heat up M&A in next 12 months

  • Report released by MVision Private Equity Advisers and the London Business School reveals private equity’s attitudes to Chinese outbound acquisitions
  • Private equity firms expect to face more competition from Chinese buyers over the next 12 months across multiple sectors, with healthcare expected to see the biggest surge in interest
  • Healthy assets and well-known brands are seen as the most favoured assets for Chinese buyers
  • 76% of GPs think the influx of Chinese buyers into the market is inflating valuations

Private equity firms globally anticipate a surge in interest from Chinese buyers for acquisitions in healthcare, tech and infrastructure, according to research conducted by MVision Private Equity Advisers in conjunction with the London Business School. Conversely, the private equity community expects real estate, a longstanding safe haven for Chinese investment, to attract less interest. Geographically, General Partners (GPs) polled expect mainland Europe to attract the most Chinese investment this year, with the U.S. in second place.

Understanding where Chinese appetite for outbound acquisitions lies is key for many GPs in Europe and the U.S., who spent much of 2016 coming up against such bidders, whether corporates or Chinese GPs, in auction processes.

Competition at auctions has intensified over recent years, but now it appears that more bidders are entering the race. Two thirds of GPs said they had come up against a Chinese buyer in an auction process more frequently over the last 12 months, with 29% of GPs admitting they had lost out to a Chinese bidder at auction in 2016.

Almost half (45%) of the GPs polled perceive offers submitted by Chinese buyers to be overpriced. Whether due to the prices offered or simply the addition of new players, 76% believe that increasing numbers of Chinese bidders are escalating valuations.

Critically for the private equity industry, a resounding 86% of the GPs surveyed anticipate that rising numbers of Chinese buyers will provide them with more exit opportunities. This is despite an uncertain future for Chinese M&A. General Partners noted that government intervention may stifle Chinese buyers’ attempts to make significant investments abroad, as China tightens regulation in an effort to prevent a large-scale “capital flight”.

Commenting on the report, Mounir Guen, Chief Executive Officer at MVision Private Equity Advisers, said:

“Although more buyers will always lead to more competition, in the long run China offers an unprecedented opportunity to the private equity community globally. Half of the GPs we spoke with intend to proactively seek Chinese commitments for new funds this year. Chinese institutions’ allocation to private equity could increase ten-fold over the next decade, so firms that can build bridges into this market will reap the rewards. Simultaneously, home-grown GPs in China with sophisticated investment strategies will be able to acquire and expand brands into their local markets. The rise of Chinese spending power will ultimately enrich the private equity community globally.”

Francesca Cornelli, Professor of Finance and Director of Private Equity at London Business School, added:

“Our research shows that the private equity industry expects Chinese buyers to increasingly target healthy assets and well-known brands when making outbound investments. As new buyers enter the market, the perception is that they are looking to invest in relatively low-risk assets with a long-term future. As Chinese private equity firms develop increasingly sophisticated deployment strategies we expect heightened competition for distressed and turnaround investments in the future.