Chinese Internet majors pursuing growth through M&A, trend likely to continue in 2017

Ctrip’s $1.74 billion acquisition of Scotland-based Skyscanner, while representing a major exit for Europe’s technology ecosystem, is also part of a wave of Chinese M&A transactions – led by its Internet majors seeking to expand their international footprint – at a time when Chinese deals are serving influence the global M&A landscape.

According to CFO Innovation, Chinese outbound M&A surged 180 per cent by value in 2016 to $187.5 billion as Chinese enterprises sought diversification and exposure to growth industries in Western markets. Chinese cross-border M&A was up 223 per cent by value in Europe and 558 per cent in North America.

Data compiled by CB Insights  indicate – excluding privatisations and de-listings from bourses – that the ten largest Chinese Internet firms trading on US bourses, such as Alibaba (and affiliate Ant Financial), Tencent, Baidu, Netease, Ctrip, JD.com, Netease, Weibo, Vipshop, Sina Corporation and 58.com have made nearly 60 acquisitions since 2011.

Overall, the pattern of acquisitive behaviours has seen a shift towards acquisitions of companies outside of China, with 2013 being an exception for Chinese Internet corporations. Chinese Internet firms are venturing abroad and expanding their scope beyond the Chinese market, however these efforts have met obstacles.

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One factor is that expansion to emerging markets – with the hope of replicating their domestics success by leveraging on large user bases with free mobile games and apps – hasn’t generated the revenue figures that Chinese firms have targeted.

Besides lacking the same development trajectory as China, fast user growth in markets such as Brazil doesn’t necessarily translate to substantial revenue. Emerging markets, while promising in terms of their growth potential, lack the developed infrastructure and spending power that development markets offer. This has led Chinese Internet firms to shift other focus to more developed markets in North America and Europe.

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Jomec’s Journal 2016 Q4

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