Inbound Investment in Technology in China Thrives Against Backdrop of a Softening Domestic Deal Making

Size: px

Start display at page:

Download "Inbound Investment in Technology in China Thrives Against Backdrop of a Softening Domestic Deal Making"

Jonah Blair
6 years ago
Views:

1 AUTHORS Silvina Aldeco-Martinez MD, Product & Market Development Inbound Investment in Technology in China Thrives Against Backdrop of a Softening Domestic Deal Making Olga Parfiryeva Associate, Product & Market Development EMEA & APAC oparfiryeva@spglobal.com Clement Ma Senior Director, Product & Market Development APAC clement.ma@spglobal.com Joshua Mintz Associate Director, Product & Market Development APAC joshua.mintz@spglobal.com January 11, 2017 The Chinese M&A and private placement market has seen strong growth over the past decade. In 2017 the total number of completed transactions for targets based in China while down from the peak year in 2015, as well as 2016, represented 48% growth compared to On a completed deal value basis, the growth was even more pronounced at 161% for a total deal value of $295.9bn in Also notable was the increase in average deal sizes, from $72.7m in 2007 to $109.7m in the peak year of 2015, to $112.1m in was led by three deals with transaction values of $5.0bn or higher, including the $9.3bn acquisition of China United Network Communications Limited by a consortium of investors. Chart 1: Domestic Aggregate Transaction Value In 2017, while the number of completed transactions trended lower at 3,227, representing a 27% decline from 2016, the average deal value of $112.1mm represented the second highest year by average deal size. This was supported by a larger percentage

2 of investments into the Information Technology sector, led by Softbank s $5.5bn investment into Didi Chuxing Technology Co., In line with the overall growth in China market transaction activity, sponsor-backed deals for China targets have also risen since 2007 at a similar pace, backed by the formation of new China-based private equity funds and also a stronger push into China from select global PE and VC firms. In 2017, completed transactions were 727, which represented 23% of the total China deal count and an 86% increase over On a deal value basis at $83.1bn for 2017, sponsor-backed transactions grew 400% compared to Chart 2: Domestic Sponsor Backed vs Non-Sponsor Backed Comparing 2017 to 2016, sponsor-backed transactions increased approximately 7% relative to 2016 levels on a deal count and 25% on a deal value basis, which represents an increase compared to the overall decline in China deal activity. Of the ten largest sponsor-backed deals completed in 2017, four of them are in the Information Technology sector including the aforementioned investment into Didi Chuxing. Outbound Flows into Technology Alongside the rise in domestic activity, outbound M&A and private placement activity from China has grown steadily over the last decade, with 2016 setting a record both in terms of completed deals at 761 and aggregate transaction value at $133.0bn, representing growth over 2007 of 286% and 607% respectively. During 2016 the top sector for outbound Chinese investment was Information Technology where a combined $36.8bn was invested across 219 deals representing over 28% of overall investment by deal value. spglobal.com/marketintelligence 2

Chart 3: 2016 Outbound Aggregate Transaction Value In 2017, total outbound investment from China has seen a decrease to 597 deals at $119.2bn, which represent 22% and 10% declines compared to 2016.

3 Chart 3: 2016 Outbound Aggregate Transaction Value In 2017, total outbound investment from China has seen a decrease to 597 deals at $119.2bn, which represent 22% and 10% declines compared to While this decline is less than the decline for domestic activity, it may not yet fully reflect the China regulatory pressures on outbound M&A, which is more apparent in announced transaction activity rather than deal completions. During 2017, outbound investments into Information Technology reflect only a small decline of 6% to 206 deals from 219 in However, in terms of aggregate deal value, 2017 represents a substantial decrease in investment by 75% to $9.3bn. This compares to 2016 during which $36.8bn which was backed by 7 completed deals of $1bn or greater including the $8.6bn acquisition of Supercell Oy. Chart 4: Outbound Aggregate Transaction Value spglobal.com/marketintelligence 3

Global GPs Look East To Capture IT Opportunities Looking through a wider lens on global sponsor-backed activity, the Information Technology sector witnessed growing attention from global PE firms

4 Global GPs Look East To Capture IT Opportunities Looking through a wider lens on global sponsor-backed activity, the Information Technology sector witnessed growing attention from global PE firms over the last decade. During this period the total capital deployed into IT targets across the world grew by 40%, from $98.0bn in 2007 to a peak of $136.6bn in In 2017, capital allocated into the IT sector was $122.5bn, 13% below the same period in 2016, across 5,210 deals. Chart 5: Global PE Investments In terms of where capital was invested globally, the majority of the capital has historically been invested into North American IT companies, standing at $51.8bn in 2017 across 2,272 new deals. This was a decline from a strong 2016 for North America-based IT targets, that attracted a record $77.6bn of new money from global GPs. IT companies in APAC and EMEA, have still been lagging behind with $37.4bn and $32.3bn, respectively. Pushing EMEA out of the second spot in terms of invested capital since 2015, APACbased targets have been attracting more interest from global GPs recorded 6% less capital invested into the IT sector in Asia compared to 2016, ($37.4bn to $39.6bn). Worth noting that there has been a clear shift in terms of where the largest deals were recorded geographically over the past few years. Looking at the top five IT deals globally on an annual basis since 2010, 2017 was the first year United States-based targets were not present in the leading ranks. Since 2012, China has started to feature more prominently, overtaking the US for the first time that year with a $4.1bn deal compared to the largest US deal of just $1.6bn. In 2017, China featured three of the top 5 deals globally, placing first, third and fourth, totaling $13.5bn of new capital for the region from just these three deals. Focusing in on the deals, the largest purchase globally over the last two years was the Chinese Internet and Services company, Qihoo 360 Technology Co., which was acquired for $9.9bn in cash with 27.2x EBITDA purchase multiple. spglobal.com/marketintelligence 4

5 Continuing this trend, 2017 s largest deal was also completed in China, with the previously mentioned deal of SoftBank s Private Equity investment arm providing US$5.5bn of funding to Didi Chuxing Technology Co., It is clear that while APAC does not attract the same number of deals as other regions, it offers larger opportunistic targets which global GPs have been eager to purchase at a record capital. As Table 1 illustrates, in 2016 and 2017, out of the top 10 largest deals four took place in APAC, and in China in particular. Table 1: Top 10 Largest PE Deals Globally (2016 and 2017) Target name Qihoo 360 Technology Co. Veritas Technologies LLC Target Primary Industry Internet and Services Target Location Closed Year Transaction Value (mm) EBITDA Purchase Multiple Buyers Name China 2016 $9, x Ping An Insurance (Group) Company of China, (SEHK:2318) and others United States 2016 $7,000 NA The Carlyle Group L.P. (NasdaqGS:CG) and GIC Pte. Buyer Location Club (China, United States) Club (Singapore, United States) Solera Holdings Inc. Didi Chuxing Technology Co., Aon plc, Benefits Administration and HR Business Process Outsourcing Platform Didi Chuxing Technology Co., SolarWinds, Inc. Internet and Services United States 2016 $6, x Vista Equity Partners LLC United States China 2017 $5,500 NA SoftBank Group Corp. (TSE:9984) and Softbank Group Capital Limited United Kingdom 2017 $4, x The Blackstone Group L.P. (NYSE:BX) China 2016 $4,800 NA SoftBank Group Corp. (TSE:9984) and others United States 2016 $4, x Silver Lake and Thoma Bravo, LLC Club (United Kingdom, Japan) United States Club (China, United States, Japan) Club (United States) Ant Financial Services Group Playtika Data Processing and Outsourced Services Home Entertainment China 2016 $4,500 NA China Life Insurance Company Limited (SEHK:2628) and others Israel 2016 $4,400 NA Hony Capital (Beijing) Co., and others Club (China) Club (China) Didi Chuxing Technology Co., China 2017 $4,000 NA Softbank Group Capital Limited United Kingdom Source: S&P Capital IQ platform as of 31/12/2017. Table is sorted by transaction value and is for illustrative purpose only. spglobal.com/marketintelligence 5

6 No content (including ratings, credit-related analyses and data, valuations, model, software or other application or output therefrom) or any part thereof (Content) may be modified, reverse engineered, reproduced or distributed in any form by any means, or stored in a database or retrieval system, without the prior written permission of S&P Global Market Intelligence or its affiliates (collectively, S&P Global). The Content shall not be used for any unlawful or unauthorized purposes. S&P Global and any third-party providers, as well as their directors, officers, shareholders, employees or agents (collectively S&P Global Parties) do not guarantee the accuracy, completeness, timeliness or availability of the Content. S&P Global Parties are not responsible for any errors or omissions (negligent or otherwise), regardless of the cause, for the results obtained from the use of the Content, or for the security or maintenance of any data input by the user. The Content is provided on an as is basis. S&P GLOBAL PARTIES DISCLAIM ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE, FREEDOM FROM BUGS, SOFTWARE ERRORS OR DEFECTS, THAT THE CONTENT S FUNCTIONING WILL BE UNINTERRUPTED OR THAT THE CONTENT WILL OPERATE WITH ANY SOFTWARE OR HARDWARE CONFIGURATION. In no event shall S&P Global Parties be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs or losses caused by negligence) in connection with any use of the Content even if advised of the possibility of such damages. Credit-related and other analyses, including ratings, and statements in the Content are statements of opinion as of the date they are expressed and not statements of fact. S&P Global Market Intelligence s opinions, analyses and rating acknowledgment decisions (described below) are not recommendations to purchase, hold, or sell any securities or to make any investment decisions, and do not address the suitability of any security. S&P Global Market Intelligence assumes no obligation to update the Content following publication in any form or format. The Content should not be relied on and is not a substitute for the skill, judgment and experience of the user, its management, employees, advisors and/or clients when making investment and other business decisions. S&P Global Market Intelligence does not act as a fiduciary or an investment advisor except where registered as such. While S&P Global Market Intelligence has obtained information from sources it believes to be reliable, S&P Global Market Intelligence does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives. S&P Global keeps certain activities of its divisions separate from each other in order to preserve the independence and objectivity of their respective activities. As a result, certain divisions of S&P Global may have information that is not available to other S&P Global divisions. S&P Global has established policies and procedures to maintain the confidentiality of certain non-public information received in connection with each analytical process. S&P Global may receive compensation for its ratings and certain analyses, normally from issuers or underwriters of securities or from obligors. S&P Global reserves the right to disseminate its opinions and analyses. S&P Global's public ratings and analyses are made available on its Web sites, (free of charge), and and (subscription), and may be distributed through other means, including via S&P Global publications and third-party redistributors. Additional information about our ratings fees is available at spglobal.com/marketintelligence 6

April 10,

www.spglobal.com/ratingsdirect April 10, 2018 1 www.spglobal.com/ratingsdirect April 10, 2018 2 www.spglobal.com/ratingsdirect April 10, 2018 3 www.spglobal.com/ratingsdirect April 10, 2018 4 www.spglobal.com/ratingsdirect