Overseas M& A deals surge in the first three quarters: PwC report

The number of transactions involving overseas mergers and acquisitions ( M& As) by companies from the Chinese mainland in the first three quarters of this year reached a record 671, nearly double the total for all of 2015, according to a report released by PwC on Thursday in Shanghai.

The transactions were valued at more than $ 160 billion, with at least 30 deals worth $ 1 billion each, said the report.

Experts said concern over the weaker yuan may prompt more mainland companies to seek M& A opportunities overseas in the future.

“Now that the yuan has been included in the IMF’s [ Special Drawing Rights] currency basket, its exchange rate is expected to be more market- oriented,” Tang Xun, transaction services partner at PwC China, told the Global Times on Thursday.

“To diversify their currency risks, more domestic companies are expected to acquire foreign currency- denominated earnings and profit through overseas M& A deals,” Tang said.

Also, the Chinese government supports domestic companies’ overseas acquisitions under such policies as the “Belt and Road” ( B& R) initiative.

Policies and initiatives such as the B& R initiative resulted in the M& A deal volume of Stateowned enterprises ( SOEs) increasing to 95 in the first three quarters, compared with 82 in 2015, according to the PwC report.

Privately owned companies surpassed SOEs in transaction value for the first time, accounting for half of the entire transaction value in the first three quarters, said the report.

Private companies have been more inclined to buy advanced technology, management experience, talent and brands in sectors such as media and entertainment, manufacturing and consumer goods. SOEs are more inclined to make deals in traditional sectors such as energy and minerals, as well as healthcare and agriculture, according to the report.

Domestic companies will face more strict regulations and growing risks in M& A overseas.

The State Administration of Taxation released a document on June 29 that set higher compliance requirements for domestic companies investing overseas.

For instance, a domestic company holding a multinational company with total revenue of more than 5.5 billion yuan ($ 820 million) in the previous fiscal year must file country- by- country reports to disclose its financial statements in every country in which it operates.

“Also, Chinese domestic companies should be cautious on any potential tax exposure from debt restructuring and transfer pricing arrangement,” Zhuang Shuqing, international tax services leader for PwC Asia Pacific, said at the press conference on Thursday.