BCG - The Boston Consulting Group

• About This Report
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• Preface
• The Growth in Chinese Outbound M&A
• The Performance of Chinese Outbound M&A
• Strategic Implications for Western Companies

In recent years, Chinese companies have burst onto the global mergers-and-acquisitions (M&A) scene. So far, the value of these Chinese “outbound” acquisition deals remains relatively small. We estimate that since 1986, Chinese companies have invested some $30 billion in non-Chinese companies, nearly a third of it in 2004 and 2005 alone. This amount is significantly less as a percentage of GDP than the equivalent amounts for other rapidly developing economies such as India and South Africa. And it pales in comparison with the more than $60 billion per year of foreign direct investment currently flowing into China. Nevertheless, we believe that the recent flurry of M&A activity on the part of Chinese companies is only the beginning of a powerful long-term trend.

A new generation of aggressive Chinese companies wants to break out of the Chinese home market. Financing is plentiful. The Chinese government is aggressively creating national champions that are strong enough to compete globally. For at least some of these Chinese companies, often the most dynamic and entrepreneurial, acquisition is becoming a preferred strategy for reaching global scale quickly. What’s more, there is an increasing supply of deals as established global companies review their portfolios and decide to divest from noncore sectors.

To understand the strategic implications and managerial challenges of Chinese outbound M&A, The Boston Consulting Group studied some 500 deals involving Chinese companies that took place over the past 20 years. We also analyzed the performance of a cross-industry sample of 16 transactions between Chinese and non-Chinese companies that have taken place since 2001. (To our knowledge, this analysis is the first attempt to evaluate the stock market performance of recent Chinese deals.) Our study produced five key findings:

• The current wave of Chinese outbound M&A is intensifying—and there is plenty of room for growth.
• So far, Chinese companies have proven to be better investors than acquirers.
• Most Chinese acquirers lack world-class M&A capabilities.
• A new organizational model may be emerging.
• For Western incumbents, Chinese outbound M&A represents a potential threat—but also an opportunity.

Jim Hemerling is a senior partner and managing director in the San Francisco office of The Boston Consulting Group.

David C. Michael is a senior partner and managing director in the firm's Beijing office and Head of BCG Greater China.

Holger Michaelis is a partner and managing director in the firm's Beijing office.