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Role of mergers and acquisitions grows as IPOs stall
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MERGER and acquisition activity is playing an increasing bigger role in the venture capital and private equity industry in China, where the initial public offering market remains in the doldrums, industry watchers said.
“M&A is set to be a main exit channel for China’s VC/PE sector, which has entered a harvest season after years of investment,” said Ni Zhengdong, founder and chief executive officer of Zero2IPO Group, an integrated service provider in China’s VC/PE industry.
Currently, only 18 percent of VC/PE deals exit via IPOs, compared with more than 80 percent in the past, said Ni.
New share offerings on the Chinese mainland have been stalled for eight months. As of August 8, 748 companies were waiting for approvals from the securities regulator to launch IPOs on the Shanghai and Shenzhen bourses.
The value of merger and acquisition deals in China hit US$40.3 billion between January and June this year, a record high for a half-year reading, data from the Zero2IPO Research Center showed.
In the first past of the year, most of M&A deals happened in the real-estate, energy and mining sectors, followed by health care, machine manufacturing and clean technology sectors, according to Ni.
Mergers and acquisitions provide shortcuts for companies to upgrade their operations, to expand their product portfolio and to tap new markets, but challenges remain, market watchers said.
“The M&A sector is still hobbled by issues such as a shortage of professional talent, limited financing channels and administrative barriers,” Ni said.
Zhang Xuejun, chief executive officer with Leading Capital Co, said merger and acquisition transactions are much more complicated than pre-IPO investments as the former requires skills in negotiation and capabilities to bring together matching candidates.
Xu Bo, managing director of CITIC Buyout Fund, estimated the value of domestic M&A deals in China will reach 6.5 trillion yuan by the end of 2015.
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