Private-equity investors to return to China in search of M&A deals in 2024, Bain & Co says

Bain’s statement is significant because, despite a drop in deal volumes, mainland China still accounted for 41 per cent of deals in the Asia-Pacific region in the first half of 2023, according to S&P Global Market Intelligence.

Mainland China reported 5,156 M&A deals in 2023, with a combined value of US$301 billion, according to Refinitiv data. This was a nine-year low and a third straight year of declines, in terms of deal volumes.

US dollar-denominated private-equity funds that have at least half their capital invested in China raised US$1.4 billion in the first half of last year, down about 90 per cent from a year earlier, according to Preqin data.

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However, earlier this month, UBS forecast that profit growth for Chinese listed companies will jump to 8 per cent in 2024 from 3 per cent last year, buoyed by a recovery in the world’s second-largest economy.

Beijing will unveil its annual growth targets for gross domestic product, consumer inflation and fiscal deficit for 2024 in March, when the annual session of the National People’s Congress is held.

Moreover, Kang Yi, head of China’s National Bureau of Statistics, said during a press conference on Wednesday that some incentives Beijing rolled out last year – such as the plan to issue 1 trillion yuan (US$139 billion) worth of special treasury bonds – will take effect in 2024. The central government will also prepare new supportive policies to spur the mainland’s economy, he added.

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Most investors with massive amounts of dry powder prefer large-scale businesses to small, high-growth firms, as they chase stable and sustainable returns in a fast-changing market, Bain said.

Private-equity dry powder soared to an unprecedented US$2.59 trillion globally as of December 1 last year, an 8 per cent increase over December 2022’s total of US$2.39 trillion, data by S&P Global and Preqin shows.

Bain said in a research report released on Thursday that buyout funds mainly benefited from higher valuations of portfolio firms in China amid increasing price-to-earnings multiples, because investors in new rounds of financing were convinced of their future growth potential.

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Higher valuations contributed to 55 per cent of the total returns private-equity funds reaped in China from 2012 to 2022, Bain said. Revenue increases contributed to 37 per cent of total returns while only 8 per cent of the returns were derived from profit rises.

Middle Eastern countries that are eager to shift from fossil fuel-based economies are pursuing opportunities for China inbound M&A deals, particularly in the new energy and electric-vehicles (EV) sectors.