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June 15, 2017

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China wins the Cup of mergers and acquisitions

CHINA has won the Cup of mergers and acquisitions, after its investors came top of the league table in soccer club investments over the last three years.

The SportsLinking division looked at 201 investments by 41 countries worth a total of 4.08 billion euros (US$4.58 billion) during the 2014-2016 period to reveal these findings. First, China topped the table with 2.15 billion euros of investments. This is seven-fold lead over the runner-up, the United States, at 313 million euros. Second, China scored more investments than the 40 other countries combined, which made a total of 1.94 billion euros.

Mark Dixon, ThinkingLinking’s chief thinking officer, said “China’s sprint to the top of the league is extraordinary. But what’s more astonishing is that it scored more than all the others added together.”

“Never has one country risen so fast in the league, nor left the others so far behind. China has without question won the M&A Cup,” Dixon said.

Commenting on the reasons, he said “China just decided to do it — both at the government and company level. It’s the result of the country’s sheer ambition to become a major player in this field globally and to bring home the knowhow and kudos from each of these wins.”

Chinese appetite for soccer club investments has continued apace in recent months. AC Milan, a deal which kicked off last year, ended up in April this year agreeing to accept 740 million euros from Sino-Europe Sports.

China’s year-on-year investment rise has had its own driving forces back home. But it has also coincided with a decline in global investment in the sector. Chinese investment levels on disclosed value deals rose from zero in 2014 to 1.59 billion in 2016. Meanwhile, over the same period, the rest of the world’s investment went down from 974 million euros to 591 million euros.

“Western attention lapsed at precisely the time when Chinese ambition soared. This vacuum coincided with this Chinese energy, letting China score time and again on an almost open pitch,” Dixon explained.

Surging investment

Chinese investment last year was three times its value in the prior year when it had already nudged past the rest of the world.

Leaving aside motivation and ambition, the way Chinese investors were able to spend more than the rest of the world was by making much larger deals.

“When the Chinese win, they score big,” Dixon said. The average size of Chinese investments, at 126 million euros, was five times larger than other countries.

“In the M&A Cup, it’s not just about winning but also about the score. The combined effect of winning and scoring big explains how China spent more than all other players combined,” he said.

A reason behind the larger price ticket per deal is that China targets top league clubs — 63 percent of the time versus 49 percent for investors from other countries. The Chinese are well-known for always wanting to buy the best. They like the prestige of owning the premier league clubs. Plus these are the only clubs of interest to Chinese fans.

Another reason for larger deals is that China prefers control. Buying more than 50 percent of a club not only costs more in actual terms but the control carries a premium as well. Chinese investors insisted on control in 80 percent of their deals versus 70 percent for other investors. Control is important to be able to bring back the knowhow to China.

In the feeding frenzy to buy soccer clubs, China has even been competing against itself, driving up prices further. The number of Chinese industries involved in buying clubs was broader than other countries. Western investors have typically been from businesses already involved in soccer or other sports team owners and private equity groups. Outsider sectors (synergistic and non-synergistic investors) made up 25 percent of the players. But for Chinese investors, outsider sectors made up 65 percent.

“We’ve seen almost every industrial sector in China looking at soccer investments. Seemingly irrelevant sectors have shown no restraint, without deference to industrial logic or conventional wisdom. Investors from pharmaceuticals to toy manufacturing and LED lighting production have piled in,” Dixon added.


(The article is adapted from a report by M&A adviser ThinkingLinking)


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