PricewaterhouseCoopers Zhong Tian LLP MoneyTree TM China TMT Report Q3/Q4 216 Data source: Zero2IPO Research This MoneyTree TM China Telecommunications, Media and Technology (TMT) Report for Q3/Q4 216 includes information on private equity and venture capital (PE/VC) investments in the TMT industry for 216, 215, and 214. www.pwccn.com www.pwc.com/globalmoneytree
Contents 1. Overview 4 2. PE/VC investments in the TMT industry 5 TMT industry investments compared with all industries 5 Investments by quarter 7 Investments by sector 8 First-round funding compared with follow-on funding 11 Investments by stage of development 13 Investments by region 16 3. PE/VC exits in the TMT industry 17 Exits by quarter 17 Exits by type 18 Exits by sector 2 4. Methodology and definitions 21 5. Contacts 23
1. Overview Against the backdrop where high finance flowed to large unicorns in the first half (H1) of 216, PE/VC investment in the TMT industry saw a decline in deal value in the second half (H2) of 216, but still remained at a high level. During H2 216, deal volume in the technology, media and telecommunications (TMT) industry set the highest six-month record since 212, reflecting investors belief that TMT is a disruptive force that touches all industries. The TMT industry accounted for over half of overall industry investment in H2 216. Although TMT deal value recorded a smaller proportion as compared with H1 216, the level was still higher than previous years. By and large, first-round investments represented the majority of investments in the TMT industry during H2 216, but single- average-deal value saw a decrease from the level of H1 216. Q3 216 witnessed 33 investments with single value over US$1 million and booked a new record. However, deal value for H2 went down by around 3% as compared with that of H1 due to overly disperse investments and a decrease in the number of unicorns seeking financing, which, in turn, indicated that the high valuations of unicorns deterred investors from new targets. Market investors were looking for the next unicorns, hoping to boost overall performance by leveraging a single investment. At present, investments in the TMT industry appear to be highly concentrated and strikingly polarised. Analysed by sector, Internet remained the most attractive sector in the TMT industry during H2 216, with both deal volume and deal value much higher than those of other sectors. The Internet sector was most sought after as investors were attracted by the continued influence of Internet Plus on traditional fields and emerging businesses such as bike sharing; therefore, the Internet subsectors remained unchallenged as the largest sector within the TMT industry. Cultural businesses greatly benefited from the Proposals for the 13th Five-year Plan. During H2 216, Entertainment and Media overtook Telecommunications and Mobile to finish in third place, and subsectors such as publishing and film and television were in the spotlight. As the market expected regulatory authorities to expand direct financing channels and to deal with the pent up demand for IPOs from long-waiting IPO candidates, IPOs, especially IPOs on A- share exchanges, saw accelerated growth in H2 216 and again became the principal form of gaining liquidity for private investors. Exits in Technology increased significantly in H2 216, the extent of which was greater than other sectors. Listing on Chinese exchanges became mainstream in H2 216. But as Hong Kong and US equity markets continued to rally, companies, especially those that have not yet become profitable, chose those markets as IPO destinations. On the whole, the TMT industry remains robust and creative, facilitating the development of other industries and ushering in continuous progress. This report brings you the details of the PE/ VC investments and exits in the TMT industry, together with its four major sectors for H2 216, serving as a tool to update you on the key trends and trajectories shaping TMT industry investments. We welcome the opportunity to discuss the implications of this report with you, and encourage you to connect with us with any queries you have. Wilson Chow Global TMT Leader PwC China Jianbin Gao TMT Leader PwC China 4 MoneyTree TM China TMT Report
2. PE/VC investments in the TMT industry TMT industry investments compared with all industries During H2 216, overall industry investment trended downward after hitting a peak in H1 216, but remained historically high. Deal volume set a six-month record since 212 to reach 5,; particularly, Q4 216 witnessed 3,721 deals, booking a new record for a single quarter. Total TMT deal value and volume accounted for 52% and 26% of overall industry investment, respectively. Main findings: 1. In Q3 216, the proportion of TMT deal value to overall industry investment value hit the highest mark since 212, peaking at 84%. 2. In Q4 216, TMT deal value dropped dramatically from the record high of Q3 216, accounting for only 29% of overall industry investment and falling back to the level in 214. PwC Viewpoints Overall PE/VC investment was boosted by sizeable investments in large unicorns during Q2 216, and total deal value exceeded US$4 billion for the first time. From then on, the market tended to be more rational, and total deal value returned to a more normal quarterly level of US$2-3 billion. In Q4 216, overall industry investment reached US$27.74 billion, the second largest cap since 212, only behind that of Q2 216. Such a wave showed how enthusiastic strategic investors have been. Correction of TMT deal value was relatively lagging as compared with that of overall industry investment. As a result, the proportion of deal value to overall industry investment reached the record of 84% in Q3 216, but plummeted to 29% in Q4 216. However, the proportion of TMT deal value to overall industry investment remained above 5% in H2 216, and single-deal value reached as high as US$4. billion, indicating that the TMT industry is much more popular than other industries. MoneyTree TM China TMT Report 5
Overall PE/VC investments Figure 1: Comparison of total PE/VC investments and TMT investments Q1 214-Q4 216 US$m PE/VC funding in all industries PE/VC deal volume in all industries Q3 16 $23.66 Q3vsQ2-51% Q3 16 1,927 Q3vsQ2-7% Q4 16 $277.42 Q4vsQ3 36% Q4 16 3,721 Q4vsQ3 93% US$m 45, 4, 35, 3, 25, 2, 15, 1, 5, $5,868 $2,49 Q1 14 Q2 14 Q3 14 Q4 14 Q1 15 Q2 15 Q3 15 Q4 15 Q1 16 Q2 16 Q3 16 Q4 16 PE/VC funding in all industries $24,176 $25,632 $17,612 $18,584 $16,84 $15,325 $13,289 $13,936 $11,23 $8,577 $8,957 $5,539 $5,137 $5,723 $3,865 $41,25 $21,14 $2,366 $2,51 $17,19 PE/VC funding in TMT industry $27,742 $7,913 Figure 2: Comparison of total PE/VC investments and TMT investments Q1 214-Q4 216 (Deal volume) PE/VC investments in the TMT industry 4, 3,5 3, 2,5 2, 1,5 1,814 2,486 2,379 1,242 1,41 2,75 1,927 3,721 US$m PE/VC funding Q3 16 $171.9 Q3vsQ2-15% Q4 16 $79.13 Q4vsQ3-54% 1, 5 618 412 593 954 927 336 716 717 634 466 577 429 481 271 251 Q1 14 Q2 14 Q3 14 Q4 14 Q1 15 Q2 15 Q3 15 Q4 15 Q1 16 Q2 16 Q3 16 551 Q4 16 84% Q3 Q4 29% PE/VC deal volume in all industries PE/VC deal volume in TMT industry Q3 16 927 Q4 16 551 PE/VC deal volume Q3vsQ2 46% Q4vsQ3-41% Q3 15% Q4 48% 6 MoneyTree TM China TMT Report
Investments by quarter Figure 3: TMT investments by quarter Q1 214-Q4 216 US$m 25, 2, 15, 1, 5, $5,539 271 251 $3,865 $5,137 $2,49 Q1 14 Q2 14 Q3 14 Q4 14 Q1 15 Q2 15 Q3 15 Q4 15 Q1 16 Q2 16 Q3 16 Q4 16 Deal value 466 429 716 577 $8,577 $8,957 Deal volume 954 $13,289 481 $5,723 $13,936 717 $2,51 634 927 $17,19 551 $7,913 Volume 1,2 1, Figure 4: Volume of TMT investments with single value over US$1 million Q1 214-Q4 216 35 3 25 2 15 1 5 7 11 7 9 8 6 4 2 23 22 21 2 19 19 11 33 In Q3, deal value experienced a decline, but deal volume rose to an all-time high with the number of investments with single-value over US$1 million setting a record In Q3, while deal volume rose sharply over the previous quarter, TMT deal value experienced a decline, with average single-deal value dropping 44% on a quarter-on-quarter basis. Volume of investments with single value over US$1 million reached 33, 1.4 times as many as that of the previous quarter, booking the highest level since 212. Total value of investments with single value over US$1 million amounted to US$11.16 billion in Q3, accounting for 65% of overall TMT investment. An internet finance company received US$4. billion of funding, the highest single-deal value and a historical record. Both total deal value and deal volume experienced decline in Q4 TMT deal value in Q4 plummeted from the investment spree seen in Q2 and Q3, which fell in line with expectations; however, the level was still higher than that of Q4 215. As compared with the previous quarter, average single-deal value decreased by 22%. Q4 witnessed 19 investments with single-value over US$1 million, and the highest single-deal value amounted to US$6 million. Total value of investments with single value over US$1 million amounted to US$3.75 billion in Q4, accounting for 47% of overall TMT investment. Q1 14 Q2 14 Q3 14 Q4 14 Q1 15 Q2 15 Q3 15 Q4 15 Q1 16 Q2 16 Q3 16 Q4 16 PwC Viewpoints During H2 216, deal volume in the TMT industry hit the highest six-month level since 212 and reached 1,478, reflecting investors confidence in the TMT industry. However, deal value for H2 went down by around 3% as compared with that of H1 due to overly disperse investments and a decrease in the number of unicorns seeking high finance, which, in turn, indicated that the high valuation of unicorns had deterred investors from new targets. Market investors were seeking the next unicorns, hoping to boost the overall trends by leveraging on a single hot ticket investment. At present, investments in the TMT industry appear to be highly concentrated, reflected in total value of investments with single-value over US$1 million accounting for around 5% of total TMT industry investment value. At the same time, investments in the TMT industry also seemed strikingly polarised, as shown by investments with single value below US$1 million emerging in large volume, the value of which remained at low levels. MoneyTree TM China TMT Report 7
Investments by sector The TMT industry sectors are: Technology, Internet, Telecommunications and Mobile, and Entertainment and Media. Internet: The Internet was the hottest investment sector in the TMT industry. Deal value totalled US$18.19 billion in H2 216, down by 15% from H1 216. Deal volume grew slightly by 3% from the level in H1 216, but single-deal value saw a decline as compared with H1 216. H2 216 witnessed 39 investments with single value over US$1 million. However, volume of high finance decreased, with only one deal valued over US$1 billion, at US$4. billion. Technology: Both deal value and volume in the Technology sector were second only to those of the Internet sector. Deal volume in H2 216 rose 49% over the level of H1. Deal value in Q3 reached a historical peak to stand above US$3 billion, while that of Q4 slumped to US$1.9 billion. H2 216 witnessed eight investments with values over US$1 million, and the highest single-deal value amounted to US$842 million. Entertainment and Media: Deal volume in H2 216 grew 39% over H1 216 to 163. Volume in Q3 even exceeded the level of 1 to stand at 18, booking an all-time high record. As there was no mega cap investment in H2 216, deal volume for such period descended by 37% from H1 216; but average singledeal value in both Q3 and Q4 remained stable. H2 216 witnessed only two investments with values over US$1 million, and the highest single-deal value amounted to US$31 million. Telecommunications and Mobile: Deal value and volume in this sector were overtaken by those of Entertainment and Media; thus, this sector fell to the bottom in the chart. Deal volume in Q3 remained more or less the same as that in Q2, but deal volume dropped 3% in Q4 as compared with that of Q3. Deal value in Q3 decreased 88% as compared with Q2, which was attributable to a sizeable investment of US$4.5 billion in a mobile service company in Q2. On the contrary, deal value climbed slightly by 7% in Q4. H1 216 witnessed only three investments with values over US$1 million, each valued at around US$1 million. Among the 33 investments with single value over US$1 million in Q3 216, Internet, Technology, and Entertainment and Media accounted for 73%, 21% and 6%, respectively. Among the 19 investments with single value over US$1 million in Q4 216, Internet, Telecommunications and Mobile, and Technology accounted for 79%, 16% and 5%, respectively. Figure 5: Deal value comparison of the TMT sectors Q1 214-Q4 216 US$m 25, 2, 15, 1, 5, Figure 6: Deal volume comparison of the TMT sectors Q1 214-Q4 216 6 5 4 3 2 1 Entertainment and Media 487 426 37 386 316 245 228 269 27 239 138 125 152 154 112 113 125 136 117 76 74 119 61 94 15 15 67 48 4 78 9 45 5 64 12 15 1 2 31 26 Q1 14 Q2 14 Q3 14 Q4 14 Q1 15 Q2 15 Q3 15 Q4 15 Q1 16 Q2 16 Internet Telecommunications and Mobile Technology Entertainment and Media PwC Viewpoints $8,577 $8,957 $13,288 $5,539 $3,865 $5,137 $5,718 $2,49 $13,936 $2,51 Q1 14 Q2 14 Q3 14 Q4 14 Q1 15 Q2 15 Q3 15 Q4 15 Q1 16 Q2 16 Internet Telecommunications and Mobile Technology $17,19 535 31 224 153 18 55 6 42 Q3 16 Q4 16 In H1 216, TMT industry investment value was greatly boosted by sizeable investments in a number of super-sized unicorns. The market continued to thrive in H2 216 after the super-sized company investment spree, and deal volume saw a rise due to market expectations. But there was no blockbuster company during the period; therefore, single-deal value declined dramatically, which directly dragged down the deal value in H2 216. Internet remained the most attractive sector in the TMT industry, with both deal volume and deal value much higher than those of other sectors. The Internet sector was most sought after as investors were attracted by the continued influence of Internet Plus on traditional fields and emerging businesses such as bike sharing; therefore, the Internet sector remained unshaken as the largest one within the TMT industry. Technology remained the second, while Entertainment and Media overtook Telecommunications and Mobile to take third place. Sectors such as publishing, film, and television attracted much more attention from the market during H2 216. As stated in Proposals for the 13th Five-year Plan, the culture industry will become a pillar of the national economy by 22. Accordingly, it can be expected that, stimulated by a series of favourable policies, the entertainment industry will enjoy a period of strong growth. People will invest more in education, culture and entertainment fields, and there will be more channels to liquidate investments. $7,913 Q3 16 Q4 16 8 MoneyTree TM China TMT Report
Q3 216 Total deal volume for the TMT industry reached 927 deals, with a total investment value of US$17.11 billion. Deal volume by sector Internet: 535 deals, 58% of the total Technology: 224 deals, 24% of the total Entertainment and Media: 18 deals, 12% of the total Telecommunications and Mobile: 6 deals, 6% of the total Figure 7: Deal volume in the TMT sectors Q3 216 6 6% 18 12% 535 58% 224 24% Internet Technology Entertainment and Media Telecommunications and Mobile Deal value by sector Internet: US$12.4 billion, 73% of the total Technology: US$3.2 billion, 19% of the total Entertainment and Media: US$913 million, 5% of the total Telecommunications and Mobile: US$599 million, 3% of the total Figure 8: Deal value in TMT sectors Q3 216 (US$m) $124,2 73% $913 5% $599 3% $31,95 19% Internet Technology Entertainment and Media Telecommunications and Mobile QoQ comparison between Q3 216 and Q2 216 Deal volume Deal value Technology 91% 11% Internet 39% 28% Telecommunications and Mobile 6% 88% Entertainment and Media 61% 49% MoneyTree TM China TMT Report 9
Q4 216 Total deal volume for the TMT industry reached 551 deals, with a total investment value of US$7.91 billion. Deal volume by sector Internet: 31 deals, 55% of the total Technology: 153 deals, 28% of the total Entertainment and Media: 55 deals, 1% of the total Telecommunications and Mobile: 42 deals, 7% of the total Deal value by sector Internet: US$5.79 billion, 73% of the total Technology: US$1.9 billion, 14% of the total Telecommunications and Mobile: US$64 million, 8% of the total Entertainment and Media: US$398 million, 5% of the total Figure 9: Deal volume in TMT sectors Q4 216 Figure 1: Deal value in TMT sectors Q4 216 (US$m) 31 55% $5,788 73% 42 7% 55 1% 153 28% Internet Technology Entertainment and Media Telecommunications and Mobile $398 9% $64 18% $1,87 14% Internet Technology Entertainment and Media Telecommunications and Mobile QoQ comparison between Q4 216 and Q3 216 Deal volume Deal value Technology 32% 66% Internet 44% 53% Telecommunications and Mobile 3% 7% Entertainment and Media 49% 56% 1 MoneyTree TM China TMT Report
First-round funding compared with follow-on funding Figure 11: TMT follow-on funding compared with initial investments Q1 214-Q4 216 1% 9% 8% 7% 6% 5% 4% 3% 2% 1% % 78% 73% 67% 63% 65% 61% 58% 6% 62% 44% 45% 46% Q1 14 Q2 14 Q3 14 Q4 14 Q1 15 Q2 15 Q3 15 Q4 15 Q1 16 Q2 16 Q3 16 Q4 16 Initial investments Follow-on investments Q3 216 Q4 216 US$m PE/VC funding in all industries Q3 16 First-round $21.89 Total investment $171.9 Q3 13% Q4 16 First-round $1.18 Total investment $79.13 Q4 13% PE/VC deal volume in all industries Q3 16 First-round 576 Total investment 927 62% Q3 Q4 16 First-round 251 Total investment 551 Q4 46% MoneyTree TM China TMT Report 11
Q3 216 Enterprises engaged in first-round funding by sector: Internet: 345 enterprises, with US$1.29 billion of funding in total; Technology: 124 enterprises, with US$57 million of funding in total; Entertainment and Media: 74 enterprises, with US$15 million of funding in total; Telecommunications and Mobile: 33 enterprises, with US$245 million of funding in total For first-round funding, 467 enterprises were at the early stage, accounting for 81%; 94 enterprises were at the expansion stage, accounting for 16% and 15 enterprises were at the late stage, accounting for 3%. Q3 216 First-round funding (US$) Number of enterprises < 1m 27 1m-5m 29 >5m-1m 34 >1m 45 Q4 216 First-round funding (US$) Number of enterprises < 1m 66 1m-5m 136 >5m-1m 25 >1m 24 124 345 33 74 Q4 216 Enterprises engaged in first-round funding by sector: Internet: 155 enterprises, with US$669 million of funding in total; Technology: 53 enterprises, with US$235 million of funding in total; Entertainment and Media: 28 enterprises, with US$76 million of funding in total; Telecommunications and Mobile: 15 enterprises, with US$38 million of funding in total For first-round funding, 187 enterprises were at the early stage, accounting for 75%; 58 enterprises were at the expansion stage, accounting for 23% and 6 enterprises were at the late stage, accounting for 2%. PwC Viewpoints 155 We have seen a continual emergence of new companies that have contributed to innovation and entrepreneurship in fields that are changing people s lifestyles and living environments. This is the trend of the times, and so new projects in this arena have attracted attention from investors. Deal volume of initial investments took up over 6% in Q3 216, but the proportion slid to 46% in Q4 because of an overall downward trend. While deal value of initial investments still accounted for 13%, they remained at a low level; investments with single value below US$5 million accounted for the majority of investments. These trends can be viewed as an indication of how investors have assessed the future value of such new projects. For projects with a fair degree of uncertainty, deal value was relatively small, which showed that a prudent attitude on start-ups was prevalent in the market. 15 53 28 12 MoneyTree TM China TMT Report
Investments by stage of development Deal value for early-stage investments in Q3 hit high since 212 Among the four stages of investment, the deal volume for early-stage investments remained at the top, accounting for over 5% of the total. Deal volume increased slightly from H1 216, but saw little fluctuation. The market was highly interested in emerging business such as bike sharing. Deal value reached US$9.13 billion in Q3 and hit the peak since 212, which included US$4. billion of funding in an internet finance company. H2 216 witnessed two huge deals exceeding US$5 million, each one relating to an internet service company and the other relating to an internet finance company. Deal value for expansion-stage investments maintained at a high level in H2, and six-month deal volume set a new record Deal value for expansion-stage investments returned to the normal range of US$3 billion each quarter after hitting a record high in Q2 due to two unicorn investments valued as high as US$4.5 billion in Q2. Deal volume set a new record in H2 216, reaching 424, andaccounting for more than 2% of the total. Figure 12: TMT investments by stage of development Q1 214-Q4 216 (Deal value) US$m 25, 2, 15, 1, 5, $8,577 $8,957 $5,539 $3,865 $5,137 $2,49 Q1 14 Q2 14 Q3 14 Q4 14 Q1 15 Q2 15 Q3 15 Q4 15 Q1 16 Q2 16 PIPE Late stage $13,289 $5,723 Expansion stage $13,936 $2,51 $17,19 Q3 16 Q4 16 Early stage $7,913 Figure 13: TMT investments by stage of development Q1 214-Q4 216 (Deal volume) 7 6 5 4 3 2 1 312 232 272 165 181 16 149 122 129 133 19 119 81 92 63 62 65 75 57 22 21 29 16 17 12 1 3 1 6 5 4 25 16 25 Q1 14 Q2 14 Q3 14 Q4 14 Q1 15 Q2 15 Q3 15 Q4 15 Q1 16 Q2 16 Early stage 314 544 367 Expansion stage 63 447 Late stage 371 598 231 28 193 62 73 5 36 Q3 16 Q4 16 PIPE Deal volume for late-stage investments in H2 approximated that of H1, but deal value saw a dramatic decline Deal value in H2 216 plummeted by 61% as compared with H1, when a renowned B2C company attracted US$3.3 billion of funding in Q1. As for deal volume, late-stage investments accounted for about 1%. Investments in PIPE maintained at a high level in Q3 but slumped in Q4 Both deal value and volume remained at high levels in Q3, but both fell sharply in Q4. Deal value in Q3 reached about US$4 billion, which was boosted by 12 investments with single values over US$1 million. Q4 saw only five investments, but deal value amounted to US$754 million, which benefited from US$555 million of investment into an internet medical care company. MoneyTree TM China TMT Report 13
Q3 216 Total deal volume for the TMT industry reached 927 deals in Q3, with a total investment value of US$17.11 billion. Deal volume by stage of development: Early stage: 598 deals, 65% of the total Expansion stage: 231 deals, 25% of the total Late stage: 62 deals, 7% of the total PIPE: 36 deals, 3% of the total Deal value by stage of development: Early stage: US$9.13 billion, 53% of the total PIPE: US$3.69 billion, 22% of the total Expansion stage: US$3.66 billion, 21% of the total Late stage: US$637 million, 4% of the total Figure 14: Deal volume in TMT industry by stage of development Q3 216 Figure 15: Deal value in TMT industry by stage of development Q3 216 (US$m) 598 65% $9,129 53% 36 3% 62 7% 231 25% $637 4% $3,657 21% $3,686 22% Early stage Expansion stage Late stage PIPE Early stage PIPE Expansion stage Late stage QoQ comparison between Q3 216 and Q2 216 Deal volume Deal value Early stage 61% 199% Expansion stage 28% 7% Late stage 9% 42% PIPE 44% 4% 14 MoneyTree TM China TMT Report
Q4 216 Total deal volume for the TMT industry reached 551 deals, with a total investment value of US$7.91 billion. Deal volume by stage of development: Early stage: 28 deals, 51% of the total Expansion stage: 193 deals, 35% of the total Late stage: 73 deals, 13% of the total PIPE: 5 deals, 1% of the total Deal value by stage of development: Early stage: US$3.9 billion, 39% of the total Expansion stage: US$2.85 billion, 36% of the total Late stage: US$1.22 billion, 16% of the total PIPE: US$754 million, 9% of the total Figure 16: Deal volume in TMT industry by stage of development Q4 216 Figure 17: Deal value in TMT industry by stage of development Q4 216 (US$m) 28 51% $3,86 39% 5 1% 73 13% 193 35% $754 9% $1,223 16% $2,85 36% Early stage Expansion stage Late stage PIPE Early stage Expansion stage Late stage PIPE QoQ comparison between Q4 216 and Q3 216 Deal volume Deal value Early stage 53% 66% Expansion stage 16% 22% Late stage 18% 92% PIPE 86% 8% MoneyTree TM China TMT Report 15
Investments by region Figure 18: The top five regions for TMT investments in Q3/Q4 216 (Deal volume/deal value) Deal volume Beijing 583 $13,532 US$m 5, 1, 15, 2, Shanghai 233 $2,532 Shenzhen 162 $1,47 Zhejiang Province 122 $2,657 Guangdong Province 77 $583 (except Shenzhen) PwC Viewpoints In terms of investment by region, both the deal volume and value in Beijing were far above the figures seen by other areas in H2 216. Beijing remained the core area for the Chinese TMT industry. The odds of other regions overtaking Beijing over the short run are very slim. Judged by deal volume, Shanghai secured the second spot, followed by Shenzhen. Zhejiang ranked second in terms of deal value, which was mainly attributable to one high-value deal. 16 MoneyTree TM China TMT Report
3. PE/VC exits in the TMT industry Exits by quarter In Q3 216, the proportion of IPOs surpassed that of strategic sales for the first time since Q3 215, and a trend that continued in Q4 216. As market expectations for the regulatory authorities to expand direct financing channels and to deal with the pent-up IPO demand for IPOs, IPOs, especially IPOs on A-share exchanges, saw accelerated growth in H2 216 and became the principal form of gaining liquidity for private investors. This trend will continue as long as the Chinese capital market continues to support this momentum. Listing on Chinese markets became mainstream in H2 216. But as Hong Kong and US equity markets continued to rally, companies, especially those that have not yet become profitable, will choose these markets as IPO destinations. Figure 19: Exit volume in the TMT industry Q1 214-Q4 216 8 7 6 5 4 3 2 1 23 23 2 16 17 Q1 14 Q2 14 Q3 14 Q4 14 Q1 15 Q2 15 Q3 15 Q4 15 Q1 16 Q2 16 PwC Viewpoints 26 69 53 46 46 2 47 Q3 16 Q4 16 In Q3 216, the proportion of IPOs surpassed that of strategic sales for the first time since Q3 215, and a trend that continued in Q4 216. As market expectations for the regulatory authorities to expand direct financing channels and to deal with the pent-up IPO demand for IPOs, IPOs, especially IPOs on A-share exchanges, saw accelerated growth in H2 216 and became the principal form of gaining liquidity for private investors. This trend will continue as long as the Chinese capital market continues to support this momentum. Listing on Chinese markets became mainstream in H2 216. But as Hong Kong and US equity markets continued to rally, companies, especially those that have not yet become profitable, will choose these markets as IPO destinations. MoneyTree TM China TMT Report 17
Exits by type Figure 2: TMT exit trends by type Q1 214-Q4 216 8 7 6 1 5 4 3 19 8 13 15 12 3 2 18 31 2 1 11 7 14 2 32 29 28 1 2 8 2 25 1 2 2 1 1 1 8 11 4 4 6 5 5 Q1 14 Q2 14 Q3 14 Q4 14 Q1 15 Q2 15 Q3 15 Q4 15 Q1 16 Q2 16 19 16 1 Q3 13 Q4 13 IPO Secondary sale Management buy-out Strategic sale Exit volume Strategic sale IPO Q3 216 Q4 216 1 16 5% 34% 19 31 95% 66% The number of IPOs increased significantly in H2 216 due to the resumption of IPOs which began in November 215. IPOs in Q3 accounted for 95% of the total exit volume, and those in Q4 took up over 6% of the total, indicating that IPO has become the principal way of capital exit. The proportion of strategic sales experienced a sharp decline in H2 216, but strategic sale continues to be the second choice for capital exit. H2 216 saw no management buy-outs or secondary sales. 18 MoneyTree TM China TMT Report
Listed company Exit volume Shanghai Stock Exchange ChiNext of Shenzhen Stock Exchange SME Board of Shenzhen Stock Exchange Hong Kong Main Board NASDAQ Q3 216 2 1 1 7 8 Q4 216 8 2 3 1 17 Figure 21: Comparison of TMT IPOs in Mainland China, Hong Kong and US capital markets Q1 214-Q4 216 9% Q1 14 Q2 14 1% 9% 9% 64% 71% 27% 25% 5% 64% 57% Q3 14 92% 25% 14% 9% Q4 14 29% 27% 86% 8% Q1 15 Q2 15 14% 1% 1% 67% 89% 87% Q3 15 Q4 15 Q1 16 Q2 16 Q3 16 Q4 16 Thanks to the resumption and acceleration of IPOs on A-share market, IPO exits rose in H2 216, up by 67% as compared with H1 216. As for the destination of IPOs, The Shanghai Stock Exchange and the ChiNext of the Shenzhen Stock Exchange were the core areas for domestic IPOs, while the Hong Kong Main Board and the National Association of Securities Dealers Automated Quotations (NASDAQ) were the main locations for IPOs overseas. 14% 1% 1% 29% 1% 8% 33% 5% 5% 3% 1% Mainland China Hong Kong The United States 2 exits in Q3 216 IPO: 19 deals, 95% of the total Strategic sale: 1 deal, 5% of the total 47 exits in Q4 216 IPO: 31 deals, 66% of the total Strategic sale: 16 deals, 34% of the total Figure 22: Exit types in the TMT industry Q3 216 Figure 23: Exit types in the TMT industry Q4 216 19 95% 31 66% 1 5% IPO Strategic sale 16 34% IPO Strategic sale MoneyTree TM China TMT Report 19
Exits by sector Q3 216 Exits by sector in the TMT industry: Technology: 14 deals, 7% of the total Internet: 3 deals, 15% of the total Entertainment and Media: 2 deals, 1% of the total Telecommunications and Mobile: 1 deals, 5% of the total Q4 216 Exits by sector in the TMT industry: Technology: 26 deals, 55% of the total Internet: 1 deals, 21% of the total Telecommunications and Mobile: 7 deals, 15% of the total Entertainment and Media: 4 deals, 9% of the total Figure 24: IPO exits by sector in the TMT industry Q1 214-Q4 216 4 35 35 3 25 27 22 22 26 2 15 1 5 17 16 14 13 12 16 11 11 1 9 1 7 7 7 9 8 8 5 9 4 4 4 2 6 3 1 3 2 4 2 4 1 2 3 2 3 1 Q1 14 Q2 14 Q3 14 Q4 14 Q1 15 Q2 15 Q3 15 Q4 15 Q1 16 Q2 16 Q3 13 Q4 13 Telecommunications and Mobile Technology Internet Entertainment and Media Exits in the Technology, Internet, and Telecommunications and Mobile sectors decreased in Q3, but bounced back to the level of H1 in Q4. Exits in the Technology sector increased significantly, taking up over half of the total. 2 MoneyTree TM China TMT Report
4. Methodology and definitions TMT is an acronym for Telecommunications, Media and Technology. The three words represent Telecommunications and Mobile, Media, and Technology, respectively. In this report, we have carried out analysis of the three most active sectors within TMT. They are Technology, Internet, and Telecommunications and Mobile. This report covers Q3 and Q4 216. However, in order to show trends and make comparisons in the industry, we have included data from Q1 214 to H1 216. In this report, only deals disclosing specific investment data were included in relevant analysis. Deals that did not disclose the specific investment period, deal value or investment stage were excluded from the relevant analysis in order to maintain the accuracy of the report. All data in this report was provided by Zero2IPO Research. Definitions Technology sector Hardware: Computer hardware, computer peripherals, network equipment, etc. Software: Basic software, software applications, etc. IT Services: IT consultation, software outsourcing, hosting services, computer and network security, etc. Electronics & Optoelectronics Devices: Optoelectronic components, optoelectronics, electronics, power supply, etc. Semiconductor: IC design, IC testing and packaging, IC equipment manufacturing, etc. Internet sector E-commerce: B2C, B2B, C2C, etc. Internet Marketing: Information portal, search engine, advertising agency, and Internet marketing services Internet Services: Online travel services, online recruitment services, online housekeeping services, etc. Online Education: E-learning, online classroom, etc. Online Entertainment: Online gaming, online video, and online music Social Media: BBS/Forum, online networking, etc. Internet Finance: I-finance, E-payment, etc. Telecommunications and Mobile sector Telecom Equipment and Terminals: Telecommunications and mobile equipment, telecommunications and mobile terminals, telecommunications and mobile software, etc. Other Telecommunications Subsectors: Mobile operators, fixed-line operators, virtual network operator (VNO) and others Mobile: Mobile entertainment, mobile advertising, mobile shopping, mobile healthcare, mobile technology, mobile education, mobile services, mobile social media, and mobile messaging Entertainment and Media sector Traditional Media: Newspaper, magazines, publishing, etc. Outdoor Media: Outdoor print ads, outdoor LED TV, mobile TV, building TV, etc. Video Production and Distribution: Film and television production and distribution, film projection, etc. Advertising Creation/Agency: Ad creation, media buying, ad agency, etc. Cultural Transmission: Culture brokerage and agency, etc. Entertainment & Leisure: Animation and other industries MoneyTree TM China TMT Report 21
Stage of development Early stage: This stage varies from one to five years while the product or concept is under development and not yet in mass and commercial production. During this stage, funds are mainly used for acquiring production equipment and developing products as well as marketing and setting up management systems. Expansion stage: The investment period at this stage usually lasts about two or three years. The products or services have been recognised by the market. The company generally needs more funds to further develop the product, as well as to expand facilities and production. Inventory planning and marketing efforts are also ramped up. Late stage: During this stage, the company has grown its operating revenue, and is more likely to be, but not necessarily, profitable. The company may have plans to go public. The main purpose of financing is to seek capital to grow capacity, and to introduce shareholders with industry experience and influence, thereby increasing corporate recognition and attracting shareholders. The company will aim to improve its financial structure and management system in preparation for listing. At this stage, the investment risk is the lowest, but the chance of high returns is also lower. PIPE (private investment in public equity): PE investments in publicly listed companies via preferential allotments or private placements, and the acquisition of shares by PE firms via the secondary market. Exits IPO: IPO is short for initial public offering. IPO refers to listing on the stock markets in Shanghai, Shenzhen, Hong Kong and overseas, and listing on the National Equities Exchange and Quotations. Strategic sale: This includes the sale of the PE or VC investors equity stakes (or the entire investee company itself) to a third-party company. Management buy-out: The purchase of a company by its management through either debt-credit finance or a stock transaction, which results in relevant changes in corporate ownership, control, residual claim and assets, in order to alter the structure of corporate proprietary rights. Through management buy-out, the company s operators become its owners. Secondary sale: Any purchase of the PE or VC investors equity stakes by another PE or VC investors constitutes secondary sale. 22 MoneyTree TM China TMT Report
5. Contacts If you d like to discuss what s happening in your particular TMT market or how PwC might be able to help your company meet its challenges, please reach out to one of the TMT industry leaders listed here. Wilson Chow Global TMT Leader PwC China +86 (755) 8261 8886 wilson.wy.chow@cn.pwc.com Jianbin Gao TMT Leader PwC China +86 (21) 2323 3362 gao.jianbin@cn.pwc.com Beijing Sandy R Xu +86 (1) 6533 2992 sandy.r.xu@cn.pwc.com Shanghai Jianbin Gao +86 (21) 2323 3362 gao.jianbin@cn.pwc.com Alvin Bao +86 (21) 2323 3923 alvin.bao@cn.pwc.com Frank Lin +86 (21) 2323 2955 frank.lin@cn.pwc.com Guangzhou Alex Chan +86 (2) 3819 2385 alex.p.chan@cn.pwc.com Shenzhen Vincent Cheuk +86 (755) 8261 8871 vincent.cheuk@cn.pwc.com Hong Kong Cecilia Yau +852 2289 1385 cecilia.yau@hk.pwc.com MoneyTree TM China TMT Report Editorial Team: Frank Lin Partner, TMT frank.lin@cn.pwc.com Brian B Yan Senior Manager, TMT brian.b.yan@cn.pwc.com Lina Miao Marketing & Communications Manager, Private Equity & TMT lina.miao@cn.pwc.com Donald Huang Senior Associate, TMT donald.huang@cn.pwc.com MoneyTree TM China TMT Report 23
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