Crouching Tiger, Hidden Dragon: The Rise of Chinese Technology M&A

Chinese acquisitions of technology companies are on the rise. Of the $107 billion which Chinese acquirers spent on acquisitions in 2015, more than $28 billion was spent on technology acquisitions alone, more than double the level of activity in 2014.

Whereas dealmaking was previously driven by government policy (through state-owned enterprises), independent Chinese enterprises now account for three-quarters of all deals completed. This contributed to a much increased pool of prolific Chinese acquirers, with the likes of Alibaba, Lenovo, Huawei, CEC, Tsinghua Holdings, AsiaInfo-Linkage, Shanda and Qihoo360 actively using M&A to achieve their strategic objectives. Deal sizes have also been steadily increasing with $1 billion+ transaction sizes now commonplace, and more than 16 of such deals recorded in the last three years as compared to just three between 2002 and 2012. In addition to larger deals, Chinese interest in smaller technology companies is also growing, with the average transaction size in the sub $1 billion deal market being $59 million in 2015 as compared to $13 million in 2010.

Demand for M&A is not only coming from the more seasoned Chinese buyers but we are also seeing growing interest from first time acquirers. Here at Mooreland we are seeing our dialogues with seasoned as well as first time counterparties increasing. As an example, we recently assisted TravelSky in navigating its first cross-border M&A deal – a deal that happens to be legally more complex than usual. Leveraging our cross-border experience, TravelSky announced the acquisition of OpenJaw, a Dublin based provider of bookings and travel packaging software owned by Guestlogix, a Canadian entity currently in a court-approved sale and investment solicitation process conducted under the Companies’ Creditors Arrangement Act (CCAA) in Canada.

The benefits of technology, with its resultant multiplier effect in economic activity, is driving Chinese M&A demand. Having spent much of the last few decades as the factory of the world, China now needs technology, home-grown brands, innovation and services to sustain domestic demand and spur growth. Over the past year, many verticals within technology have been impacted by this overriding Chinese need, with an estimated $8 billion spent on overseas deals in 2015 alone as compared to $260 million in 2010, a 32-fold increase.

Interestingly, the rise of Chinese M&A activity has coincided with increased oversight by the Committee on Foreign Investments in the US (CFIUS) who are focused on protecting technologies deemed critical to the US. According to the recent report to Congress (Feb 2015), around 50% of deals referred have been subject to further scrutiny (following an initial review) by CFIUS. Whilst this has, to some extent, delayed deals, we have not seen Chinese appetite dampened by this development. On the contrary, this is now factored in as part of the negotiation process and potentially, opening opportunities for Europe as a preferred M&A destination.

We are certainly being kept busy by Chinese clients seeking to buy overseas as well as educating our sellside clients to not discount China. Indeed, Chinese appetite for technology is introducing a new paradigm to cross-border deal making, encouraging technology companies to seek out buyers not just from the US and Europe but also China.

Louis Jeng

Louis Jeng

Louis is an Executive Director of Mooreland Partners in the London office, and is a member of the Enterprise Software and Industrial Technologies and Electronics teams.