As economies recover, global M&A competition to heat up

14:25, March 31, 2010      

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Chinese buyers of foreign companies and resources are likely to face tough competition from their Western rivals as the global economic recovery takes shape, according a report released in Beijing yesterday.

"Chinese companies made a record number of crossborder acquisitions in 2009 – some 298 in total," with their major targets being natural resources, Charles Lee wrote in the report published by the Economist Intelligence Unit (EIU), the business information arm of The Economist Group, publisher of The Economist magazine.

Chinese companies made 14 outbound mergers and acquisitions in the energy and mineral sectors in 2009, worth $15.66 billion in total, or 97.2 percent of the total amount of all overseas M&As last year, Talents Magazine said in its March issue, citing data from Zero2IPO, a Beijing-based firm providing data related to capital markets.

However, competition for takeover targets will heat up as the worst impacts of the global financial crisis on M&A markets is over, and Chinese buyers could be at a disadvantage if they are slow to respond.

"The need for Chinese companies to gain approval from their government for investment – and the time required and uncertainty created – is likely to put them at a disadvantage," Lee wrote.

Foreign takeover targets are already receiving inquiries from more Western investors, while a recovery in the stock markets around the world is also giving cash-strapped companies more fund-raising options, according to the report.

"There are too many approvals to get (for an outbound acquisition), and they are quite unnecessary," said Zhang Wenkui, deputy director of the enterprise research institute under the Development Research Center, a government think tank of the State Council, China's cabinet.

But Zhang was not optimistic about getting rid of the bureaucracy because the powers that be, such as the National Development and Reform Commission and the Ministry of Commerce, would not easily give up their authority.

Although Chinese firms, especially State-owned enterprises (SOEs), are flush with cash and enthused about bargain hunting among foreign assets, they still lack the international expertise required to pull off a deal.

Stephen Harder, a managing partner at the British law firm Clifford Chance, a sponsor of the EIU report, suggested that those looking to make an acquisition make a good evaluation of the legal, business and political aspects of a potential deal as early as possible.

Harder said dealmakers should build up a team with the cultural and linguistic skills to facilitate communication among all stakeholders.

Source: Global Times


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