Analysts: British firms still strong M&A targets

Updated: 2016-07-02 06:56

By Cecily Liu(China Daily Europe)

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Chinese mergers and acquisitions in Britain are expected to stay strong despite the country's vote to leave the EU, as most purchases of targets are done in the hope of achieving synergy in China, so are not affected by Britain's business environment, analysts say.

The weakening of the pound after the referendum result on June 23 has also intensified Chinese interest in some British acquisitions.

In football, for example, three English clubs are subject to intense interest from Chinese buyers, more so since the currency market movements, says Simon Chadwick, a professor of sports enterprise at Salford Business School.

Analysts: British firms still strong M&A targets

A WORKER CHECKS a TX4, the famous black cab, at the end of the production line at the London Taxi Company in Coventry, central England. The black cab business was saved by Chinese car maker Geely. Reuters / Darren Staples

Zhang Xueying, head of the China and Far East desk at Sherrards Solicitors, says many of her Chinese clients identified British M&A targets before the vote but were holding off until after the vote.

And when the public came out in favor of Brexit, many clients saw the drop in the pound as a good opportunity to purchase British targets for less, she says, although none actually made a move as they felt unsure about the nation's general business environment.

Will Holder, a corporate partner at law firm King & Wood Mallesons, says the big picture for Chinese M&As in Britain is not expected to change, but over the short term the market could "provide ripe pickings for Chinese investors eager to capitalize on the weakened pound".

"Indeed, against this are also the concerns regarding the quality of earnings for UK companies, alongside the regulatory impact, which will disrupt the market, causing uncertainty to British and Chinese investors," he adds. "Ultimately, the longer-term investment profile of Chinese businesses may play to their advantage."

Alan Barrell, entrepreneur in residence at Cambridge University's Judge Business School, says most Chinese acquisitions in the UK focus on the niche market, high-technology deals, where the acquirer takes the target's technology to China for commercialization and then sells it to Chinese consumers.

"As such, the success of these deals would depend on the quality of the acquired assets much more than they would depend on the overall economic situation of the UK, and the UK's relationship with Europe," he says.

Barrell sees significant opportunities for Chinese acquisitions in Britain's high-tech sectors including healthcare, life sciences, clean technology and financial services.

Analysts: British firms still strong M&A targets

According to data compiled by Baker & McKenzie, China's direct investment in Europe last year hit a record $23 billion. Britain was the third-largest recipient, with $3.3 billion, while the largest recipients were Italy ($7.8 billion) and France ($3.6 billion).

Some Chinese acquisitions of British companies are made with the goal of making it into a regional base to expand into Europe, a strategy that could be affected by Brexit, experts warn.

"Brexit is extremely bad news on all fronts," says Andre Loesekrug-Pietri, founder and managing partner of ACapital, a private equity firm in Brussels. "Not only is there immediate value loss, but many investments were made as the UK was seen as an entry place into the huge European market."

He says he expects the focus of Chinese M&As to shift from the UK to major countries like Germany or France.

According to the ACapital Dragon Index, which tracks Chinese outbound M&As, 45 percent of such deals were done in Europe last year. The top country in terms of deal value was Italy, with $8.8 billion, followed by France ($4.8 billion), Switzerland ($4 billion) and Britain ($1.9 billion).

Going forward, Chinese investors are being advised to watch closely the changing regulatory and investment climate in relation to their business as Britain creates new laws on foreign investment, says Mike Wang, another corporate partner at King & Wood Mallesons.

"Despite the market volatility, Chinese investors will still be attracted to investing and acquiring assets in the UK," he adds.

cecily.liu@chinadaily.com.cn

( China Daily European Weekly 07/02/2016 page9)

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