Gearing Up for the New Era of China’s Outbound M&A

Gearing Up for the New Era of China’s Outbound M&A

          
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Gearing Up for the New Era of China’s Outbound M&A

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  • At first glance, Chinese companies would appear to be enjoying a golden age of deal making: the outbound M&A market flourished from 2004 through 2014, with deal value growing at a compound annual rate of as much as 35 percent, and deal volume expanding at a compound annual rate of 9.5 percent. In 2014 alone, Chinese companies made 154 outbound M&A deals, with a total deal value of $26.1 billion. (See Exhibit 1.)

    exhibit

    But the impressive growth numbers mask some less impressive statistics. Chinese acquirers complete just 67 percent of their outbound deals, on average, far fewer than those completed by European, Japanese, and U.S. outbound acquirers. What’s causing so many deals to fail? The main culprits, according to our research, are flawed, unclear M&A strategies and ineffective deal management. Even deals that are completed often fail to achieve their goals because of poorly planned and executed postmerger integration and synergy capture.

    Failed deals represent enormous missed opportunities. Chinese acquirers have never been better positioned to take their place among the top ranks of global deal makers. But before they can do so, they must commit themselves to investing heavily in the skills, capabilities, and—most important—the seasoned international talent required for M&A activity on the global stage. And they must act now, while the macroeconomic currents worldwide continue to flow strongly in their favor.

    In this report, we review the confluence of trends, developments, and policy prescriptions that have contributed to the surge in outbound Chinese M&A. We examine the dynamics that are changing the game for Chinese acquirers and analyze why so many outbound deals fall through—and why so many of those that are completed yield disappointing results.

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