China deal flows decline, but healthcare bucks ... | KPMG | CN
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China deal flows decline, but healthcare bucks the downtrend, says KPMG analysis

China deal flows decline, but healthcare bucks ...


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China deal flows have declined sharply since the second half of 2011, mainly as a result of the European sovereign debt crisis and tightening of China's monetary policy, latest KPMG analysis shows. 

KPMG analysis shows that deal volumes in Q1 2012 were down 30 percent from Q4 2011 and 29 percent year on year. 

Jeremy Fearnley, M&A Partner, KPMG China, says: "These numbers reflect the current malaise in the markets, as we see volumes decline worldwide. In fact, one has to go back as far as Q1 2009 to find the last time that deal volumes were so low."

The data notes that deal values were also hugely depressed, plunging to a level some 56 percent lower than Q4 2010. Jeremy adds: "This stark drop reflects the six month gestation period typical for deals in this region and suggests that Q2 figures will mirror the uncertain economic conditions of Q4 2010 and also be depressed." 

Outbound deals were relatively more resilient than inbound and at an average deal size of USD58m versus USD17m, considerably larger, which highlights that outbound deals are catching up with inbound activity. This is due to strong balance sheets in China and a continued focus on outbound expansion opportunities. 

Domestic deals were hardest hit in the quarter, with a significant drop in volumes, though a relatively smaller decline in value. Deal volumes fell 33 percent from Q4 2011's 974 deals to Q1 2012's 652 deals, compared to a milder 16 percent fall in value from USD 35.5bn to USD 29.8bn over the same period.

This suggests that smaller deals have been hardest hit by recent cooling measures, as funding becomes harder to obtain.

Jeremy adds: "Though a relatively small sector, it is also interesting to note that even though there has been an overall decrease in the number of domestic deals, there is a significant increase in deals in the non-bank credit institutions, for example micro-finance. Deal volumes have more than doubled from historical norms, presumably as alternative sources of credit have gained more traction in the market and acquirers have looked to capitalise on the opportunity."

The larger end of the market, in the USD 500m+ range, has been dominated by the materials sector, with its deals largely unaffected by the crisis. "This reflects the lack of spending constraints in this strategically important sector and the acquirers being largely state funded," explains Jeremy.

Meanwhile volumes and values were consistently down across both strategic and PE deals. Across the sectors there was little or no change in the sector composition of the deals, although certain micro trends are emerging, such as PEs tending to focus more on consumer discretionary, and industrials sectors, while strategics have maintained almost identical spending percentages by sector across 2011 to Q1 2012, with Materials, Industrials and High Technology remaining the largest sectors of focus.

The healthcare sector however has bucked the downtrend, showing consistent growth over the last four quarters. Since hitting a low of 46 deals in Q1 2011, this has since risen to 74 deals in Q1 2012, a CAGR of 61 percent, and an aggregate value of USD2.2bn.

Healthcare deals have been dominated by the pharmaceutical industry, which usually represents 50-60 percent of the total deal count. The other categories are Health Equipment and Supplies (15-25 percent); Biotech (10-15 percent); Healthcare Services (5 percent); and Hospitals (5 percent).

Jon Parker, Transaction Services Partner, KPMG China, says: "With the need for China to continue to focus on social stability, an aging population, and moving up the value chain from its traditional manufacturing focus, the deal volumes in this sector should continue to grow steadily over the next few years, shifting towards services as well over that period. The sector is also interesting for its share of current cross border activity, with deals by the Pharma majors, as well as recent private equity stakes."


- Ends -


About the analysis

Statistics in this release are based on data from Thomson ONE Banker. The statistics reflect announced deals including deals with both disclosed and undisclosed deal values. The data is continuously updated and therefore subject to change.  



KPMG analysis: M&A trends (PDF 148KB) 


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KPMG China has 13 offices (including KPMG Advisory (China) Limited) in Beijing, Shanghai, Shenyang, Nanjing, Hangzhou, Fuzhou, Xiamen, Qingdao, Guangzhou, Shenzhen, Chengdu, Hong Kong and Macau, with around 9,000 professionals.

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