➤ Chinese outbound media and tech M&A surged to more than $44 billion in 2016
➤ China on course to exceed the U.S. as top acquirer of foreign companies
➤ Chinese plans to curb foreign investment unlikely to impact outbound M&A
The Napoleonic ambition of Chinese investors and their surging spending power are likely to provide another shakeup across the global M&A landscape in the year ahead.
Boosted by China's enhanced international political and economic influence, Chinese buyers have increased the pace of outbound investment in recent months.
Strong appetite for media and internet assets tracked by S&P Global Market Intelligence led to more than double the amount spent on outbound Chinese transactions last year, with 2017 year-to-date investment more than double what it was during the same period in 2016.
Broader figures by London-headquartered M&A advisor Clarity show total outbound M&A for the entire media and technology sectors surged to more than $44 billion across 128 acquisitions in 2016, compared with less than $3 billion spent in 2013.
Save for a slowdown toward the end of 2016 as tighter capital controls were introduced, China was on course to exceed the U.S. as the top acquirer of foreign companies across all sectors, said Clarity Managing Director Jonathan Davis.
Among last year's most prolific media acquirers is Chinese conglomerate Dalian Wanda Group, a relatively unknown player in Hollywood until its 2012 purchase of the AMC Entertainment Holdings Inc. cinema chain for $2.6 billion. AMC's own £921 million purchase of Britain's Odeon & UCI Cinemas Group, announced last July, gives its Chinese owner further ammunition to build a global entertainment colossus.
The firm, run by Wang Jianlin, China's richest man, also splashed out at least $6.7 billion across six media deals last year. The group's targets included Legendary Entertainment, the movie production house behind "Jurassic World" and "The Hangover" trilogy, as well as InFront Sports & Media, which holds some of the marketing rights to FIFA's World Cup.
Willing to offer premiums
"Due to the distance and cultural barriers, Chinese buyers are favoring larger transactions that move the needle in terms of revenue or profit," according to Jean-Michel Deligny, managing partner of London-based technology investment bank Silverpeak.
He added that high multiple valuations in mainland China mean that Chinese buyers are more willing to pay a premium on overseas acquisitions.
This became obvious in the case of AppLovin's majority stake sale. The San Francisco-based adtech startup was sold to Chinese private equity firm Orient Hontai Capital for a staggering $1.4 billion, even as U.S. app downloads declined 20% year-over-year as of May 2016, according to Nomura.
Crucially, a lot of foreign companies targeted or approached by Chinese buyers are out of the price range of non-Chinese companies, said Glen Drury, London-based founder of tech-focused Kanuii Consulting.
Also, large U.S. players such as Facebook Inc. or Alphabet Inc. already have a lot of the in-house capabilities that Chinese companies are seeking in order to break into western markets, Drury added.
One important strategic factor that drove the upward trajectory of Chinese firms was their resolve to be "the acquirers and not the acquired," said Glen Calvert, founder and CEO of online audience-targeting technology company Affectv.
He said in an interview that global brands need a digital focus, and the west offers "a plethora of scaled advertising and marketing technology suppliers" that can be leveraged and scaled up.
"[Outbound deals] provide Chinese buyers with strategic positioning within buoyant large markets that have phenomenal access to talent and cutting edge technology," Calvert added.
Premiums on outbound Chinese deals were also evident in the online travel sector, which recorded an uptick in both foreign and domestic Chinese deals. For instance, Chinese buyout fund Ocean Management and the highly acquisitive Ctrip, China's largest online tourism group, invested a combined $6.1 billion in Chinese online travel site Qunar Cayman Islands, and Scotland-headquartered Skyscanner, respectively.
"The bigger the deal, the better," said one London-based M&A banker who is in discussions with three Chinese buyers to sell a U.K.-headquartered digital media business and preferred to remain anonymous.
"In a country with over 200 major cities, scale is essential," the banker said, adding that Chinese businesses such as Keda Group, a conglomerate historically focused on infrastructure, real estate and financial services, may appear more prominently in the media and internet buyer landscape in the months ahead.
Caught in political crosshairs
While China's M&A ambitions rage on, the tendency to get caught in political crosshairs does mean that ambitious moves from the east are not always well-received.
An attempt by a group of Chinese internet firms to take over Opera Software ASA for roughly $1.2 billion fell through after they failed to secure the required regulatory approvals.
Instead, the consortium, consisting of prominent acquirers including Chinese security firm Qihoo 360 Technology, settled for a $600 million bid for Opera's other assets, including its browser and technology licensing business.
In other historically contentious areas such as the data-focused chip industry, a $714 million bid for Germany's Aixtron by a group of Chinese investors sparked political concern in Washington, D.C., and Berlin that eventually led to a withdrawal of approval for the deal.
At the same time, China's own plans to curb outbound investment above the $1 billion mark, due to depreciation of the renminbi, threaten to reverse previous measures to relax capital outflows.
But with the vast majority of deals in this sector valued at less than $1 billion, the Chinese government's restrictions are unlikely to have a significant impact on deal appetite, according to Chris Sahota, CEO of London-based M&A advisory firm Ciesco.
Japan and other Asian buyers
Sahota said a similar accelerated trend in outbound M&A among other Asian buyers is highly likely to follow China's shopping spree, with Japan already a strong contender in this regard.
Ciesco data shows Japan's Dentsu Inc. overtook Wpp Plc as the most active media and marketing acquirer in 2016, announcing 36 transactions including the $1.5 billion purchase of a majority stake in CRM and marketing performance agency Merkle.
Meanwhile, Tokyo-based SoftBank Group Corp. created headlines when it acquired Britain's ARM Holdings for $31.6 billion, making the deal the second-largest technology acquisition in 2016. It is also the second-largest semiconductor transaction on record after Qualcomm Inc.'s $47 billion bid for NXP Semiconductors N.V. last October.
Even then, industry observers insist other Asian acquirers are unlikely to match the international mindset that drives outbound bids by Chinese counterparts. In that sense, companies like Rakuten Inc., which also pursued an aggressive M&A strategy in recent years, are not in the same league as the likes of Tencent Holdings Ltd., Alibaba.com Corp., and Baidu Inc., Drury said.
"Unlike Japanese firms, Chinese companies have a global dominance mentality and are absolutely pushing to be outside China," he said.