A picture taken on April 14, 2012 in Paris, shows the logo of Natixis, a corporate, investment and financial services arm of BPCE (Banque Populaire and Caisse d'Epargne). (LOIC VENANCE / AFP)
French investment bank Natixis is betting on robust growth in both outbound and inbound mergers and acquisitions (M&A) activities on the Chinese mainland by snapping up boutique M&A advisory firms.
The investment banking arm of French retail banking group BPCE acquired stakes in three independent M&A boutiques – French technology M&A boutique Clipperton; Fenchurch Advisory Partners from the United Kingdom and Vermilion Partners which specializes in mainland cross-border deals – to boost its deal advisory business.
Dated back five years ago, many of the inbound acquisitions were driven by the export-related sector, today the scene is mainly driven by the consumer sector
managing partner and co-founder of Vermillion Partners
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Vermilion has offices in Beijing, Shanghai, Shenzhen and mainly advises middle-market mainland firms.
Outbound mainland M&A activity tumbled 10 percent in number terms last year from the peak in 2016, with 827 deals. M&A activity declined a much bigger 35 percent in value terms, Thomson Reuters figures show.
Natixis expects M&A momentum to pick up this year with clearer regulatory guidelines, strong domestic consumption growth and mainland firms’ strategic need to move up the value chain.
As the mainland shifts from an investment-oriented to consumption-oriented economy, foreign companies are eager to tap into the country’s vast domestic consumption upgrading with more M&A deals.
“Dated back five years ago, many of the inbound acquisitions were driven by the export-related sector, today the scene is mainly driven by the consumer sector,” said Marcus Shadbolt, managing partner and co-founder of Vermillion Partners
Among the 258 inbound M&A deals completed last year, the consumer sector accounted for nearly half of transactions by volume, figures from Bloomberg show.
Yet valuation remains a deterrent for foreign investment, said Shadbolt. Listed mainland firms generally enjoy a valuation premium compared with their European and United States counterparts.
The 613 consumer discretionary companies listed in Shanghai and Shenzhen’s stock exchanges have an average price-earnings ratio of 66.18, according to figures from Bloomberg.
With outbound investments, the mainland has been the engine for Asian M&A deals. Despite the significant pull back in 2016, the mainland accounted for nearly half of Asian outbound M&A deals last year.
“Yet mainland’s outbound investment scene was a mix of strategic and opportunistic, but now we are seeing the trend to be more strategic,” said Shadbolt.
As mainland firms move to the higher end of the production spectrum, they would continue to look at investments in technology, intellectual property and brands, and those are the sectors regulators encourage, said Raghu Narain, head of APAC investment banking at Natixis.
“In many cases, there has been a market saturation, where some leading Chinese firms have already reached a level of market shares, they cannot expand in the mainland further and they are going out,” Narain added.