M&Aplans limited over next 3 years

Businesses turn cau­tious be­cause of grow­ing con­cerns over fi­nance: Re­port

China Daily (Canada) - - BUSINESS - By HU YUANYUAN huyuanyuan@ chi­nadaily.com.cn

Very fewChi­nese businesses have merger and ac­qui­si­tion plans in the next three years be­cause of in­creas­ing con­cerns over fi­nanc­ing, a re­port by in­ter­na­tional ac­count­ing firm Grant Thorn­ton showed, sug­gest­ing a more cau­tious at­ti­tude to­ward busi­ness ex­pan­sion.

Ac­cord­ing to the re­port, only 10 per­cent of the Chi­nese businesses have M&A plans, a drop of 18 per­cent­age points over last year.

Be­cause of un­cer­tain eco­nomic and pol­icy con­di­tions, M&A ac­tiv­ity in the China mar­ket sawa weaker per­for­mance in the first quar­ter of 2014.

Sta­tis­tics from China Ven­ture re­vealed that 372 ac­qui­si­tions took place in the first quar­ter, fall­ing by 45.13 per­cent over the pre­vi­ous quar­ter and drop­ping by 43.81 per­cent over the same pe­riod of last year.

Fi­nanc­ing dif­fi­cul­ties and ris­ing costs are still con­sid­ered to be the most im­por­tant fac­tors con­strain­ing businesses’ M&A plans, par­tic­u­larly for small and medium-sized en­ter­prises, ac­cord­ing to Xu Hua, chief ex­ec­u­tive of­fi­cer of Grant Thorn­ton.

Ac­cord­ing to the sur­vey, 46 per­cent of China businesses be­lieve re­tained earn­ings re­main the pri­mary fi­nanc­ing source for M&As in the next three years, a rise by 10 per­cent from last year.

In the mean­time, Chi­nese businesses’ ex­pec­ta­tions from fi­nan­cial chan­nels in­clud­ing bank fi­nance (22 per­cent), ini­tial pub­lic of­fer­ings (15 per­cent) and pri­vate eq­uity (8 per­cent) are lower than last year.

De­spite steady eco­nomic de­vel­op­ment this year, the po­ten­tial pres­sure of an eco­nomic down­turn in China should not be ne­glected, ac­cord­ing to Xu.

“The pro­duc­tion and oper­a­tion of Chi­nese businesses are still trou­bled by lack of or­ders, ris­ing costs of la­bor and cap­i­tal short­ages, which re­sult in more con­ser­va­tive plan­ning re­gard­ing M&A ac­tiv­i­ties,” said Xu.

How­ever, the govern­ment has in­di­cated that mea­sures will be im­ple­mented to re­duce fi­nanc­ing costs for businesses.

The sur­vey re­veals that among Chi­nese businesses with ac­qui­si­tion plans, only 29 per­cent show in­ter­est in cross­bor­der trans­ac­tions, de­clin­ing from 47 per­cent last year. The de­vel­oped economies in Europe and the United States have stronger growth mo­men­tum, and the re­quire­ments for in­vestors there are stricter, which af­fects the will­ing­ness The num­ber for the first quar­ter, which fell by 45.13 per­cent over the pre­vi­ous quar­ter and dropped by 43.81 per­cent over

the samepe­riod of last year of Chi­nese businesses to un­der­take cross-bor­der M&A ac­tiv­i­ties.

“As global mar­kets re­cover from the down­turn, Chi­nese businesses are be­ing more ra­tio­nal over cross-bor­der trans­ac­tions com­pared with the last two years, when they were rush­ing out to buy on the dips,” said Xu.

Mean­while, the re­cov­er­ing econ­omy and more flu­id­ity in debt and eq­uity mar­kets will lead to an in­creas­ing ap­petite to exit among those who have been hold­ing as­sets through the eco­nomic down­turn.

The exit ac­tiv­ity of businesses through M&A is in­creas­ing glob­ally, with 11 per­cent of busi­ness own­ers ex­pect­ing to sell up in the next three years, higher than last year by 3 per­cent­age points.

Businesses from Aus­tralia are much more up­beat about the po­ten­tial to sell than last year, ris­ing by 10 per­cent­age points in num­ber.

Aus­tralian businesses are more in­clined to sell to man­age­ment. A to­tal of 25 per­cent ex­pect to exit via pri­vate eq­uity and 22 per­cent would like to un­der­take a trans­ac­tion with a trade buyer, the sur­vey showed.

When Chi­nese businesses’ ap­petite for over­seas M&A weak­ens, the de­sire of global businesses for cross-bor­der ac­qui­si­tions in­creases.

The sur­vey showed that 31 per­cent of the businesses glob­ally ex­pect to grow through M&As over the next three years, up from 28 per­cent last year, sug­gest­ing the re­cov­ery is on a firmer foot­ing and the fo­cus of businesses is mov­ing away from sim­ply stay­ing afloat to­ward a growth agenda.

As the de­vel­oped economies slowly re­cover from the fi­nan­cial cri­sis, there is an ev­i­dent in­crease inM&Aex­pec­ta­tions, said Xu.

The M&A ex­pec­ta­tion of businesses across the G7 group of economies climbed to 36 per­cent from 29 per­cent last year. How­ever, the emerg­ing economies see a weaker M&A ex­pec­ta­tion given the slow­ing down of eco­nomic growth. The M&A prospects of BRIC na­tions (Brazil, Rus­sia, In­dia and China) dropped by 8 per­cent­age points from last year to 19 per­cent, the sur­vey showed.

Look­ing at busi­ness sec­tor num­bers, pro­fes­sional ser­vices are most likely to grow through ac­qui­si­tions in the next three years with 47 per­cent of the en­ter­prises hav­ing such a plan.

Other sec­tors, in­clud­ing min­ing and quar­ry­ing, fi­nan­cial ser­vices, agri­cul­ture, hunt­ing, forestry, fish­ing and tech­nol­ogy, also boasted rel­a­tively high M&A ex­pec­ta­tions, ac­cord­ing to the sur­vey.

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