Outbound deal pipeline still robust, says KPMG report

Inbound acquisition deals fell to a decade-low level in China during the first six months of the year, driven by short-term economic uncertainties, a report published by global consulting agency KPMG said on Monday.

The agency, however, said China's appetite for overseas assets continued to be strong during the period.

Cross-border merger and acquisition deals between acquirers from developed countries and China declined by one-third to 52 deals in the first six months of 2014, compared with 78 deals during the same period last year, the report said.

Southeast Asia and Central and East Europe are the top two destinations where developed market buyers preferred to seek targets, it said.

"The dynamics of China M&A continue to change rapidly leading to volatility in quarter-on-quarter data. However, China remains an extremely important market globally," said Rupert Chamberlain, head of transaction services at KPMG China.

In terms of the number of deals between developed market acquirers and high growth market targets, there appears to have been a shift away from the so-called BRIC markets - namely Brazil, Russia, India and China, which saw an overall decline in the volume of investments from developed markets, the report said.

However, China is still keen in outbound investment. "China remains the most active high growth market acquirer," KPMG said, adding even though the country's acquisition activities in developed markets dropped 35.2 percent from 54 deals a year ago to 35 deals in the first half of 2014, its edge against other high growth markets worldwide is still significant. "It is in line with the average deal volumes of the past five years."

China is followed by Southeast Asia with 24 deals and India with 22 deals, the second and third among the global high growth players in terms of outbound deal volume.

Meanwhile, sector-wise, natural resources and energy are the key outbound targets globally, driven by rising demand in China, the KPMG report said.

Besides, the agriculture business and food sector has also started to gather steam in the first half. Additional deals were also recorded in the telecoms and technology sectors as China continued to strengthen its presence in related areas, the report said.

"Chinese companies continued to search for quality overseas acquisition targets to garner the resources and skills needed to enable them to compete domestically and on an increasingly global economic stage," Chamberlain said.

"In other words, although current well versed issues relating to the domestic economy have slowed down cross-border M&A, particularly for corporate investors, it is inevitable that we will see a rebalancing of inbound, outbound and domestic deals as the market matures," he said.

Separately, the report said that Hong Kong companies continue to be key acquisition targets for companies from the Chinese mainland, while Australia and the United States are the next options. Hong Kong also remains the major acquirer in the mainland's deal flow, accounting for 32 out of 52 deals.

The KPMG report includes data from completed transactions where a trade buyer has taken a minimum 5 percent shareholding in an overseas company. It tracks deal flows between 15 developed economies and 13 emerging economies, and it excludes deals backed by government, private equity firms or other financial institutions.