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

China’s outbound M&A engine has shifted its focus to new industries, including consumer goods and technology, and new companies in Europe and North America. With the right strategies in place, Chinese businesses can overcome their current obstacles in outbound M&A and be primed to take advantage of the opportunity for growth with overseas industry.

China has become a strong player in the global economy, and the country’s rate of outbound M&A is one clear sign of that growth. Over the past ten years, outbound Chinese acquisitions have seen double-digit growth, and they’re set for continued growth in the coming years. 

There are two primary factors for China’s growth in outbound M&A: 

  • China’s government is encouraging overseas investment 
  • Chinese regulation and policy framework are and will be further adjusted to support overseas investments

Together, these two factors help give Chinese business leaders more independence in striking deals with foreign companies and improve the ability to effectively complete outbound M&A activities.

Shifting Gears

For years, the Chinese government eyed energy and resource M&A opportunities primarily to support its economy. But today there is a new focus on gaining market share and core capabilities. Chinese outbound M&A deals now work to acquire technology, consumer goods, finance, media, and telecommunications organizations, to include far more diversified industries. 

The result is that in the past five years, roughly 75% of China’s outbound M&A deals were aimed at accessing technology, brands, and market share; less than 20% of deals were aimed at acquiring strategic resources. 

Another shift within China’s outbound M&A activities is a new view of target markets. Rather than focusing primarily on other Asian countries, China is now conducting more deals in Europe and North America.

Obstacles to Growth

While outbound M&A is growing, there is room for improvement. , and acquirers report only 32% of those deals are trouble-free. In order to improve the success rate, Chinese businesses may need—depending on past experience—to overcome several hurdles to create sustainable value with oversea M&A transactions. Prevailing challenges that leadership face and need to address are: 

  • Lack of a clear M&A roadmap 
  • Ineffective deal sourcing or screening 
  • Lack of capability to manage due diligence 
  • Lack of capability to identify key risks or support decision making 
  • Difficulty in understanding the overseas local business environment 
  • Inefficient communication with regulatory bodies and local stakeholders
  • Insufficient planning of the integration process Unclear governance structure 
  • Talent shortage specially in functional departments to drive the integration process 
  • Lack of tools to address cultural differences

Three Pillars of Success

There are three keys to overcoming the current challenges faced by Chinese businesses to experience successful outbound deal-making:

  • Clear M&A Strategy. Companies must work to align with corporate vision and industry trends, and establish a mechanism for strategy review and revision 
  • Effective Implementation. Throughout the deal and post-merger integration, an established process for due diligence, effective communication, solid planning, cultivation of talent, and working to close the cultural divide will pave the way for success 
  • Building Relevant Capabilities. Creating an infrastructure that can manage changes is crucial to achieving long-term success.

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