shandong province m&a review and outlook 2014-2016

Shandong Province M&A Review and Outlook

2014-2016

www.pwccn.com

May 2017

PwC

Foreword — explanation of data shown in this presentation (1/2)

• The data presented in this report is provided by Zero2IPO, and Wind Information, with PwC analysis unless otherwise stated.

• Zero2IPO and Wind Information only disclose deals that have been officially announced to the public which may be still in progress at the time of writing.

• The number of deal transactions refers to the information announced to the public, monetary value of each transaction may not be disclosed in this presentation due to confidentiality.

• The monetary value of deals disclosed in this presentation only include public available information (referred to “disclosed value”) .

• The term “Domestic” refers to Mainland China.

• The terms “Foreign” or “Outbound” refer to deals in which companies from Mainland China acquire companies based in Hong Kong, Macau or other foreign countries or regions.

• The terms “Inbound” refer to deals in which companies from foreign countries or regions acquire companies based in Mainland China.

• “Private equity fund transactions ” refer to equity transactions carried out by financial investors or transactions executed by a private equity fund with no monetary value disclosed. Such transactions are mostly managed by private equity management companies, but may include transactions executed by financial institutions or corporations which are fundamentally with private equity investment nature.

Shandong Province M&A Review and Outlook • 2014-20162

May 2017

PwC

Foreword — explanation of data shown in this presentation (2/2)

• “Strategic investors” refer to corporation investors who incorporates acquired companies into its existing business operation after acquisition completed (compared with “financial investors”) .

• “Financial investors” refer to investors perform M&A transactions with the aim of making profit from future disposal of acquired assets/equities; including but not limited to private equity funds and venture capital funds.

• Deal value is translated based on relevant exchange rates from December 31, 2014 to December 31, 2016.


May 2017

PwC

Overview of M&A activities in Shandong Province


May 2017

PwC

The M&A market in Shandong Province has grown at a fast pace from 2014 to 2016. As of 2016, the number of transactions amounted to 311, with a total deal value of RMB 284.1 billion. In total, 92% of deals had a value above RMB 500 million, representing 19% of the total number of transactions over the period.

46,171

132,792

261,016

15,128 22,720 23,050

33

71 60

138 161

251

-

50

100

150

200

250

300

-

50,000

100,000

150,000

200,000

250,000

2014 2015 2016

Num

ber o

f dea

ls

Dea

l am

ount

: RM

B in

mill

ion

Deals of more than 500M Deals of less than 500M

Deals of more than 500M in volume Deals of less than 500M in volume


May 2017

Of total deal amount in China%: 2.62% 3.49% 5.35%

Deals in Shandong Province from 2014 to 2016 (Shand ong investors & Shandong investees)

Source: Zero2IPO, Wind Information, and PwC analysis

PwC

The value of merger and acquisition deals has continued to grow at a fast pace. As of December 2016, the number of outbound acquisitions by corporations in Shandong was 7times higher than in 2015. One factor is that increasing numbers of corporations in Shandong are looking to access overseas markets. Further, new policies encouraging SOE mixed-ownership reform, group restructuring and upgrades in industrial structures have led to more investors in manufacturing, energy & resources, agriculture & food industries. These increases have contributed to the rise of deal value in Shandong Province.

18,975

57,557

111,618

27,196

75,235

149,398

7

28 29 26

43

31

-

5

10

15

20

25

30

35

40

45

-

30,000

60,000

90,000

120,000

150,000

2014 2015 2016

Num

ber o

f dea

ls

Dea

l am

ount

: RM

B in

mill

ion

Investors from Shandong Investees of Shandong

Investors from Shandong in volume Investees of Shandong in volume

6May 2017Shandong Province M&A Review and Outlook • 2014-2016

Deals in Shandong Province from 2014 to 2016 (Shand ong investors & Shandong investees) (More than 500M )


PwC

From 2014 to 2016, the number of large scale transactions has increased steadily, following enhancements to M&A in Shandong province for cross border and trans-provincial deal transactions, as well as improvement in capital flow. The total M&A transaction volume reached a historical high, 7 times higher than the deal value the year prior, and 2.3 times higher than the deal number .

13,590

32,599 34,093 32,582

100,194

226,923

11 14 9

22

57

51

-

10

20

30

40

50

60

-

50,000

100,000

150,000

200,000

250,000

2014 2015 2016

Num

ber o

f dea

ls

Dea

l am

ount

: RM

B in

mill

ion

Deals within Shandong Cross province/border deals

Deals within Shandong in volume Cross province/border deals in volume


Deals in Shandong Province from 2014 to 2016 (Shand ong investors & Shandong investees) (More than 500M ) (By area)


PwC

M&A deals: Shandong enterprises as investors


May 2017

PwC

From 2014 to 2016, private strategic investors in Shandong Province maintained an active position. In 2016, the key players for overseas acquisitions were Qingdao Haier, Qingdao Wanda Culture and XiWang food. Notably, the scale of M&A by SOEs in Shandong Province increased significantly last year. The majority of SOE deals spanned both domestic and overseas acquisitions by Weichai Power, Yanzhou Coal and ChenmingPaper, seeking to optimise the industrial structure and promote industrial diversification.

7,974

51,540

86,540

800

11,001

6,017

24,278

6

26

22

- -1 1

2

6

-

5

10

15

20

25

30

-

30,000

60,000

90,000

120,000

2014 2015 2016

Num

ber o

f dea

ls

Dea

l am

ount

: RM

B in

mill

ion

Private PE SOE Private in volume PE in volume SOE in volume


Deals of Shandong Investors from 2014 to 2016 (By i nvestor’s type)

Total deal volume: 7 28 29


PwC

1

2

3

10

8

2

3 3

10

5

4

6

-

2

4

6

8

10

Num

ber o

f dea

ls

2014 2015 2016

In 2014, domestic investments by Shandong enterprises mainly focused on manufacturing and energy & mining. Deals in TMT, finance and manufacturing grew rapidly in 2015, representing 77% of the total number of deals. In 2016, the number of deals in manufacturing and energy & mining gradually slowed down. However, deals in TMT and finance remained active.

520

2,920

4,534

12,222

10,233 9,398

5,475

7,984

12,368

5,230

8,090

4,749

-

2,000

4,000

6,000

8,000

10,000

12,000

Dea

l am

ount

: RM

B in

mill

ion

2014 2015 2016



Deals of Shandong investors by investee industry (D omestic) (Deal amount)

Deals of Shandong investors by investee industry (D omestic) (Deal volume)

PwC

The scale of investment by Shandong enterprises in overseas markets was relatively large, with an average deal size of RMB 15 billion. The targeted industries for investments gradually shifted from energy & mining to TMT, manufacturing, agriculture & food and medical health; For example, Qingdao Wanda cultural acquired Legendary Pictures, Qingdao Haier acquired GE Appliances and Weichai Power invested in DHS.


11,001 11,395

850

38,847 37,460

4,875

-

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

Dea

l am

ount

: RM

B in

mill

ion

2014 2015 2016

1 1 1

2

1 1

-

1

2

Num

ber o

f dea

ls

2014 2015 2016


Deals of Shandong investors by investee industry (O utbound) (Deal amount)

Deals of Shandong investors by investee industry (O utbound) (Deal volume)

PwC

From 2014 to 2015, Shandong enterprises mainly pursued domestic targets. Key areas for targets included Beijing, as well as locations in Eastern and Southern China. However, in 2016, overseas investments accounted for 73% of the total deal value, becoming a new growth engine for Shandong enterprise investments.

1,500 600

2,935 2,939

11,001 12,093

17,154

5,478

10,588 12,245

10,574 12,961

4,620 2,281

81,182

-

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

Beijing EasternChina

SouthernChina

Others inChina

Overseas

Dea

l am

ount

: RM

B in

mill

ion

2014 2015 2016

1 1 1

3

1

7

8

5

6

2

8

11

3 3

4

-

2

4

6

8

10

12

Beijing Eastern China SouthernChina

Others inChina

Overseas

Num

ber o

f dea

ls

2014 2015 2016



Deals of Shandong investors by investee area (Deal amount) Deals of Shandong investors by investee area (Deal volume)

PwC

M&A deals: Shandong enterprises as investees


PwC

There has been a continuous increase in M&A capital invested in Shandong enterprises in recent years. The total investment amount has reached RMB 149.4 billion in 2016, which was 4.5 times higher than in 2014; Total number of deals set a new historical record, with 43 transactions in 2015, a 65% increase from the prior year. More than 75% of these deals were investments in private enterprises. The amount of investments in SOEs also significantly increased in 2016, including the acquisition of ST Jichai by CNPC.

18,162

53,605 53,006

9,034

19,980

96,392 1,650

19

37

25

7 5 6

-1

- -

5

10

15

20

25

30

35

40

-

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

2014 2015 2016

Num

ber o

f dea

ls

Dea

l am

ount

: RM

B in

mill

ion

Private SOE Foreign Private in volume SOE in volume Foreign in volume



Total deal volume: 26 43 31

Deals of Shandong investee from 2014 to 2016 (By in vestee type)

PwC

Investments in Shandong enterprises have been mainly focused on energy & mining, manufacturing, real-estate and healthcare industries. Investments in energy & mining and manufacturing industries represent over 50% of the total investments. Investment value reached a historical peak in 2016, led by deals in the manufacturing industry. Notable examples include CNPC capital’s acquisition of ST Jichai for RMB 75.5 billion, and Shan Steel Group’s acquisition of Baldor gas for RMB16.1 billion.


May 2017

13,765

4,759 2,448 800 1,007

4,417

24,143

15,469

6,195 3,420 6,722

19,286 12,311

108,642

6,959 10,259

1,917

9,310

-

20,000

40,000

60,000

80,000

100,000

120,000

Dea

l am

ount

: RM

B in

mill

ion

2014 2015 2016

10

6

3

1 1

5

8

14

4

1

5

11

8 7

3

5

2

6

-

2

4

6

8

10

12

14

16

Num

ber o

f dea

ls

2014 2015 2016


Deals of Shandong investee by investee industry (De al amount) Deals of Shandong investee by investee industry (De al volume)

PwC

Investments in Shandong enterprises have been predominantly located in the Shandong Peninsula Blue Economic Zone and central Shandong region, which together accounted for 95% of the total investment value and over 80% of total deal number in 2016.

15,921

4,035 1,992 5,248

26,775

40,067

8,394

21,823

119,667

4,182 3,726

-

20,000

40,000

60,000

80,000

100,000

120,000

ShandongPeninsula

CentralShandong

SouthernShandong

NorthernShandong

Dea

l am

ount

: RM

B in

mill

ion

2014 2015 2016

18

3 3 2

20

17

6

9

16

3 3

-

5

10

15

20

25

ShandongPeninsula

CentralShandong

SouthernShandong

NorthernShandong

Num

ber o

f dea

ls

2014 2015 2016



Deals of Shandong investee by investee area (Deal amount)

Deals of Shandong investee by investee area (Deal volume)

PwC

Outlook


May 2017

PwC

Outlook for 2017

• We are still cautiously positive about the future mergers & acquisitions market in Shandong Province from both quantitative and qualitative perspectives.

• Following changes and rebalancing in global political and economical structures, there are increasing uncertainties both internationally and domestically. The rate of outbound acquisitions by PRC corporations gradually slowed down in the first quarter in 2017. However, we expect that outbound acquisitions with strategic implications will still be encouraged.

• M&A transactions in Shandong are on course to continue to develop and integrate with existing resources, ultimately compensating for deficiencies in the local industry chain. SOE mixed-ownership restructuring and corporation restructuring are expected to become a popular focus for the future.

• TMT, education, tourism, medical and health industries are expected to enter a new growth cycle, while manufacturing are anticipated to continue playing a vital role in the local economy.


May 2017

PwC

Our Suggestions


May 2017

PwC

Our Suggestions

• Following the robust expansion of current business, corporations in Shandong Province can consider utlising existing M&A experience, and focusing on capital management to stimulate the economy, which will ultimately improve the pace of business development.

• Under the current circumstances, we recommend corporations set out a clear M&A objective and strategy. The M&A objective and strategy will play a crucial role in making optimal assessments for each transaction. Additionally, the focus of M&A feasibility assessments should go beyond financial, legal, valuation and tax perspectives, to also cover comprehensive plan integration as well as making a backup plan to account for potential risks that can arise when executing deals.

• When it comes to PRC corporations acquiring technology assets from overseas markets, external IP acquisition and internal IP generation should be treated as equally important. Sustainable development can only be achieved by improving R&D capabilities, which will enable corporations to achieve even more in the future.

• Greater international reach will be achieved through outbound acquisitions. Corporations should also continue to develop the domestic market and build up to becoming multinational by establishing an international presence with an appropriate share structure and attracting talented employees with a global view.


May 2017

PwC

Data compilation methodology and disclaimer


May 2017

• Change in controlling interest as a result of acquisition of listed/non-listed entities

• Equity investment in listed/non-listed entities (minimum 5% equity interest)

• Business combination

• Leverage buyout, management buyout and management disposal

• Business privatisation

• Tender offer

• Splitoff of a wholly-owned subsidiary when 100% sold via IPO

• Divestment of company, division or trading assets resulting in change of control at parent level

• Reverse takeovers

• Re-capitalisation

• Joint venture buyout

• Joint venture

• Receivership or bankruptcy sales/auctions

• Tracking stock

• Balance sheet restructuring or internal restructuring

• Property/real estate for individual properties

• Rumoured transactions

• Options granted to acquire an additional with less than 100% controlling interest

• Purchase of trademarks

• Land acquisition

• Equity placement in funds

• Mutual fund stake purchase

• Share buyback and share retirement of a non-privatization transition

• Investments in greenfield operations

• Delisting process of a listed company

Included Deals Excluded Deals

This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.

© 2017 PwC. All rights reserved. PwC refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity. Please see www.pwc.com/structure for further details. CN-20170510-4-C2

shandong province m&a review and outlook 2014-2016

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