China's M&A market expects increase in domestic deals

China's merger and acquisition market is expected to be increasingly dominated by domestic deals in 2023, with surging demand for outbound investments, especially in the Asia-Pacific region and the Middle East, according to a report released by global consultancy PwC.

The recent government measures to stimulate investment, coupled with the optimization of COVID-19 control measures will have a positive influence on M&A, said the report, adding investors' confidence will gradually recover as public market valuations improve.

Chris Chan, PwC Chinese mainland and Hong Kong financial services deals leader, said he expected to see some improvement in M&A deals this year after China optimized its COVID-19 response measures.

"The M&A market in China will become even more domestically orientated, at least in the short term. We also expect to see increased demand for outbound investment, especially in the Asia-Pacific region." Chan said, estimating the number of M&A in 2023 to be close to that of last year and such deals are likely to be weaker in the first half, but stronger in the second.

The report said the value of China's M&A stood at $486 billion in 2022, down 20 percent year-on-year, marking its lowest level since 2014. There were only 54 mega-deals whose value exceeded $1 billion each in 2022, compared with 97 in 2021, with 35 of these related to State-owned enterprises' reform.

Domestic and foreign strategic M&A fell 19 percent year-on-year, with deal values decreasing in almost all sectors, mitigated only by an uptick in industry-related deals, it added.

Moreover, the value of private equity investments declined by 23 percent compared with a year earlier, but it accounted for nearly 50 percent of the total deal value for two consecutive years.

fanfeifei@chinadaily.com.cn