Chinese companies announced more than $225 billion worth of foreign takeovers last year, but the Asian nation's mergers and acquisitions (M&A) machine is stalling as the government makes an effort to reduce both currency outflows and deal making in certain areas, according to The New York Times.
Many high-profile deals have fallen through, as would-be acquirers pull out of transactions, the Times reported. While Chinese conglomerate Dalian Wanda agreed to buy U.S.-based Dick Clark Productions for $1 billion, the owners of Dick Clark announced March 10 that the transaction would not go through. (For related reading, see: Top 6 Factors That Drive Investment in China.)
Anbang Insurance, a Chinese company with a close relationship to the nation's government, was involved in an even larger botched deal, according to a separate article by the Times. Anbang led a group of partners that offered $14 billion for Starwood Hotels & Resorts Worldwide Inc., but formally withdrew their bid, pointing to "various market considerations" as prompting this move.
In spite of these botched deals, deal makers say that foreign M&A activity will likely continue this year, according to the first Times article. Many expect the pending acquisition of Swiss agricultural company Syngenta, the biggest foreign purchase to be announced by a Chinese company last year, to go through, even though the transaction must clear some regulatory hurdles.
Chinese M&A's Numerous Headwinds
After having made great strides in deal making during recent years, Chinese companies have seen their M&A efforts encounter significant headwinds, Aaron Witalec, a managing director at national investment banking practice UHY Advisors Corporate Finance, told Investopedia. "Foreign regulators have begun to take a more cautious stance against Chinese acquisitions, citing antitrust and concerns over national interest and security," he said. (For more, see also: 8 Reasons M&A Deals Fall Through.)
Witalec elaborated on the headwinds that could undermine Chinese M&A, citing changes to policy and regulation, as well as constraints on foreign investment, as being likely to "play a greater role in 2017 as the Chinese government looks to alleviate the downward pressure on the renminbi and stop the outflow of foreign exchange reserves."