China is reining in its record deal-making spree. According to Bloomberg, Chinese regulators will bar overseas investments of $10 billion and above, while leaving room for some strategic deals. They will also restrict overseas investments of more than $1 billion in industries outside a buyer’s core business, as well as foreign property deals of $1 billion or more by state-owned enterprises.
The moves come in the wake of unprecedented merger and acquisition (M&A) activity in the Asia-Pacific region led by China. So far in 2016, outbound deals by Chinese companies have doubled to $218.23 billion from last year. Chinese companies have been on a record acquisition spree, buying into everything from blood plasma to airline food. Most notable of which are:
Chinese home appliance maker Midea Group Co. agreed in May to the $4.5 billion purchase of Kuka AG, a German maker of industrial robots so nimble they’ve been used to mix cocktails on cruise ships. Kuka machinery also assembles Audi sedans and Airbus jets.
Clash of Clans
Tencent Holdings Ltd, the Chinese tech powerhouse led by billionaire Pony Ma, is making the biggest acquisition Finland has ever seen as it seeks to build up its universe of entertainment content. In June, Tencent said it will lead an $8.6 billion takeover of Supercell Oy, the Helsinki developer behind popular mobile games Clash of Clans and Clash Royale.
Lexmark inkjet printers
Chinese investors swooped in on Lexmark International Inc. after the US printer maker reported years of falling sales as it battled cheap ink refills and customers switched to digital documents. Apex Technology Co., a Shenzhen-listed maker of toner-cartridge parts, and PAG Asia Capital led a group in April that agreed to buy the Lexington, Kentucky-based company for $2.5 billion.
Chinese drugmaker Creat Group Corp. agreed in May to spend $1.2 billion to buy Bio Products Laboratory Ltd, a supplier of blood plasma products that’s been around for more than six decades. UK-based BPL processes more than 650 tonnes of blood plasma annually from American donors and supplies its products to more than 45 international markets.
Delta airplane food
HNA Group Co. agreed in April to acquire airline caterer Gategroup Holding AG for about $1.5 billion, putting the Chinese company in charge of your meal if you’re flying Delta, United Airlines Inc. or Emirates. Frequent flyers should take note that HNA could also be carrying their luggage after it bought baggage handler Swissport International Ltd in February.
Billionaire Shi Yuzhu came up with a solution for Chinese gamers who find Vegas out of reach. A consortium led by Shi’s Shanghai Giant Network Technology Co. announced a $4.4 billion deal in July to acquire Playtika Ltd, which operates casino-style online games such as Bingo Blitz and Caesars Slots.
A lot of planes
HNA has averaged more than two acquisitions a month in the past year as the Chinese company expands its global aviation empire. One of its latest targets is CIT Group Inc.’s $10 billion plane-leasing business. The purchase will help HNA create the world’s third-largest aircraft lessor, with 910 planes valued at more than $43 billion.
China has been buying entry into the European leagues in a big way. A little-known Chinese investor group sealed an $830 million deal in September for Silvio Berlusconi’s famed AC Milan club, following the purchase of cross-town rival Inter Milan last year by another Chinese company.
A heap of garbage
Beijing Enterprises Holdings Ltd, which sells everything from beer to energy, is proving that one company’s trash is another’s treasure. The state-controlled conglomerate said in February it will buy EEW Energy From Waste GmbH, which incinerates garbage to generate power, for $1.6 billion. The deal is the biggest Chinese direct investment in a German company to date.
“So You Think You Can Dance”
Chinese property tycoon Wang Jianlin, who bought the producer of the Godzilla and Dark Knight film franchises earlier this year, is now expanding his influence into American television. Wang’s Dalian Wanda Group Co. said this month it will spend $1 billion to buy Dick Clark Productions Inc., the studio behind the Miss America competition and the hit show So You Think You Can Dance.
So, what is the underlying rationale behind the moves? According to experts, it is part of an effort by Chinese authorities to keep China’s money supply within China. A new SAFE (State Administration of Foreign exchange) directive to banks on additional exchange control last week, making it harder to convert RMB (Renminbi) into USD and invest in USD out of China, discouraging capital flight.
Besides M&As, the moves would also potentially impact fund-raising by private equity and venture capital funds.