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M&A 2017 Mid Year Review

and Outlook Press Briefing
24 August 2017
Foreword – explanation of data shown in this presentation (1 of 2)

• The data presented is based on information compiled by ThomsonReuters, ChinaVenture, AVCJ,

public news and PwC analysis unless stated otherwise
• Thomson Reuters and ChinaVenture record announced deals. Some announced deals will not go on
to complete
• The deal volume figures presented in this report refer to the number of deals announced, whether
or not a value is disclosed for the deal
• The deal value figures presented in this report refer only to those deals where a value has been
disclosed (referred to in this presentation as “disclosed value”)
• “Domestic” means China including Hong Kong and Macau
• “Outbound” relates to mainland China company acquisitions abroad
• “Inbound” relates to overseas company acquisitions of Domestic companies
• “Private Equity deals” or “PE deals” refer to financial buyer deals with deal value over US$10mn
and/or with undisclosed deal value, mainly invested by private equity GPs but also including direct
investments by financial institutions and conglomerates which are of the nature of private equity
type investing

PwC 2
Foreword – explanation of data shown in this presentation (2 of 2)

• “VC deals” refer to financial buyer deals with deal value less than US$10mn and/or with
undisclosed deal value, but invested by venture capital funds
• “Strategic buyer” refers to corporate buyers (as opposed to financial buyers) that acquire companies
with the objective of integrating the acquisition in their existing business
• “Financial buyer” refers to investors that acquire companies with the objective of realising a return
on their investment by selling the business at a profit at a future date and mainly, but not entirely,
comprises PE and VC funds
• In order to exclude foreign exchange impact, deal values from 2014 to 2016 were adjusted based on
1H2017 average Rmb/US$ exchange rate

PwC 3
Overview

PwC 4
 China M&A fell by 20% in the first six months of 2017 to US$283
billion. But outbound activity, though down 13% in value terms,
increased 8% by number of deals

Total deal volume and value, from 1H14 to 1H17

% Diff % Diff
vol. val.
1H14 2H14 1H15 2H15 1H16 2H16 1H17 1H2017 1H2017
vs. vs.
Volume Value Volume Value Volume Value Volume Value Volume Value Volume Value Volume Value 2H2016 2H2016
Strategic buyers (US$bn) (US$bn) (US$bn) (US$bn) (US$bn) (US$bn) (US$bn)
Domestic 1,636 88.8 2,544 129.1 2,549 199.0 2,272 208.7 2,449 165.5 2,421 156.3 2,112 133.1 (13%) (15%)
Foreign 151 11.6 203 9.8 186 10.4 130 2.7 139 4.1 132 2.7 172 6.2 30% 130%
Total Strategic buyers 1,787 100.4 2,747 138.9 2,735 209.4 2,402 211.4 2,588 169.6 2,553 159.0 2,284 139.3 (11%) (12%)
Financial buyers
* Private Equity
VC
213
446
31.5
0.4
380
888
33.9
0.8
423
1,134
55.9
1.2
639
1,601
117.7
2.8
649
1,599
94.1
2.3
1,118
1,893
121.2
3.4
708
1,520
92.3
1.9
(37%)
(20%)
(24%)
(43%)
Total Financial buyers 659 31.9 1,268 34.7 1,557 57.1 2,240 120.6 2,248 96.4 3,011 124.6 2,228 94.2 (26%) (24%)
China mainland Outbound
SOE 32 14.2 46 10.8 43 14.0 36 9.2 62 48.8 54 15.4 66 14.0 22% (9%)
POE 75 9.9 70 3.2 105 8.8 102 11.6 316 60.1 293 44.1 295 26.6 1% (40%)
* Financial buyers 16 7.0 33 5.7 29 6.0 65 6.6 95 22.0 100 14.8 121 23.8 21% 61%
Total China mainland Outbound 123 31.1 149 19.8 177 28.7 203 27.3 473 130.9 447 74.3 482 64.4 8% (13%) **
HK Outbound 101 8.3 114 11.7 103 20.6 96 3.5 151 10.7 131 12.1 137 8.8 5% -27%
Total 2,654 164.8 4,245 199.4 4,543 309.8 4,876 356.2 5,365 385.6 6,042 355.2 5,010 282.9 -17% -20%

* Financial buyers backed China mainland outbound deals are also included in private equity deals, but they are not double counted in the total deal volume
and deal value in the table above
** The value of total China mainland outbound would be 33% down compared to 2H16, if Chinese national sovereign fund deals are taken out.

Source: ThomsonReuters, ChinaVenture and PwC analysis

PwC 5
Deal values fell across the three main sub-sectors (strategic,
financial and outbound) with fewer mega-deals….

Deal value by main category (excludes VC)

US$ billion
450

400
*
350 27.3
130.9
74.3
300
28.7 117.7 64.4 *
250
55.9
200 10.4 2.7 94.1 121.2 *
19.8 92.3
4.1 2.7
150 31.1 33.9
9.8 6.2
31.5
100 11.6 199.0 208.7
165.5 156.3
129.1 133.1
50 88.8

0
1H14 2H14 1H15 2H15 1H16 2H16 1H17

Domestic Strategic Buyers Foreign Strategic Buyers Private Equity Deals China Mainland Outbound

* US$23.8bn of financial buyer backed China mainland outbound deals are also recorded in private equity deals
Source: ThomsonReuters, ChinaVenture and PwC analysis

PwC 6
Deal volumes also fell in strategic and financial sectors, but –
despite reported curbs – outbound deal volumes increased by 8% to
a new half-year record of 482 transactions

No.
Deal volume by main category (excludes VC)
5,000

4,500

4,000
447
3,500 473 *
149 177
203 1,118
482 *
3,000 380 423 649
2,500
203 186 639
139 132
708 *
130
172
2,000 123
213
151
1,500
2,544 2,549 2,449 2,421
2,272 2,112
1,000
1,636
500

0
1H14 2H14 1H15 2H15 1H16 2H16 1H17
Domestic Strategic Buyers Foreign Strategic Buyers Private Equity Deals China Mainland Outbound

* 121 financial buyer-led China mainland outbound deals are also recorded in private equity deals
Source: ThomsonReuters, ChinaVenture and PwC analysis

PwC 7
Strategic buyers

PwC 8
Domestic strategic M&A declined by around 15% to touch three-year lows, with only 10
mega-deals valued at more than $1 billion (compared to 15 in the prior six months);
foreign inbound investment – though much smaller by comparison – was at its highest
level in two years, with some larger deals and a step-up in investment from Japan

Strategic buyer deals – Domestic & Foreign

No. US$ billion
3,000 250

208.7
2,500 199.0
200

165.5 156.3
2,000
133.1 150
129.1
1,500 2,544 2,549
2,449 2,421
2,272 2,112 100
88.8
1,000
1,636
50
500
11.6 9.8 10.4 6.2
2.7 4.1 2.7
151 203 186 130 139 132 172
0 0
1H14 2H14 1H15 2H15 1H16 2H16 1H17
Announced Deal Volume Inbound Announced Deal Volume Domestic
Announced Deal Value Inbound Announced Deal Value Domestic

Source: ThomsonReuters, ChinaVenture and PwC analysis

PwC 9
Real estate M&A hit a three year high and remains active, mainly
because of two mega deals ($18 billion in aggregate) involving
China Vanke; Technology deals also increased in comparison to the
last six months but only to return to levels last seen in 2014

Strategic buyer deal value by industry sector

US$ billion
250

200 30.8 27.3

9.7 9.5
12.8 15.3
23.2 14.1
150 18.9 21.3 6.9 4.8
22.2 18.4 12.5 12.0 10.4
29.0 16.3 6.6
10.4 26.1 9.5
33.2 7.8 10.2
100 8.9 11.1 10.0 10.2
8.1 15.8 31.9 27.6
5.6 15.5 14.8
10.0 8.6 19.0
7.0 19.2 36.7 27.4 17.1
12.5 34.2
50 28.4 19.0
14.3 19.0 24.6
9.3 28.5 27.3
17.8 39.7
24.9 24.1 20.8 30.9
0 14.8 14.3
1H14 2H14 1H15 2H15 1H16 2H16 1H17

Real Estate Industrials High Technology Financials Energy and Power Materials Consumer Media and Entertainment Others

Source: ThomsonReuters, ChinaVenture and PwC analysis

PwC 10
PE/VC and financial buyer deals

PwC 11
PE and financial buyer activity declined by around a quarter
compared to the significant peak seen in the last half of 2016, but
activity remained robust overall, with both domestic and foreign
PEs active

PE deals overview
No. US$ billion
1,200 121.2 130
117.7

1,000 110
94.1 92.3
90
800
70
55.9
600
1,118
50
31.5 33.9
400
649 708 30
639
200 380 423
10
213
0 -10
1H14 2H14 1H15 2H15 1H16 2H16 1H17
Announced Deal Volume Announced Deal Value

Source: ThomsonReuters, ChinaVenture and PwC analysis

PwC 12
The involvement of PE and financial buyers in outbound M&A is
now a well established sub-sector of the market, accounting for
nearly 25% of PE activity by value in the first half

PE deals by target location

No. US$ billion
1,200 140

1,018 120
1,000 111.2
106.4
100
800

72.1 80
574 554 587 68.5
600
394 60
400 347 49.9
40
28.2
19724.5 23.8
200 22.0
14.8 121 20
95 100
6.0 29 65
5.7 33 6.6
7.016
0 0
1H14 2H14 1H15 2H15 1H16 2H16 1H17
Domestic&Inbound Volume Outbound Volume Domestic&Inbound Value Outbound Value

Source: ThomsonReuters, ChinaVenture and PwC analysis

PwC 13
Technology and real-estate related investment activity remain
most important for financial buyers, accounting for nearly 50% by
value

PE deal value by industry sector

US$ billion
140

120
8.4 17.4
1.4
6.8
100 4.5 7.7
12.5 12.7 10.8 3.6
3.0
5.2 3.7
80 5.0 5.9
20.0 2.8 9.5 6.9
5.6
8.4 8.7 10.8
60 11.1
6.0 10.6 14.1
3.9 13.0 26.6
40 3.8 13.5
2.4
7.0 18.0
4.4 2.5 11.1
5.8 8.2 18.5
20 6.8 39.9
4.3 3.4 28.1 26.1
4.3 24.4
5.9 2.8 16.7
5.0 7.2
0
1H14 2H14 1H15 2H15 1H16 2H16 1H17

High Technology Real Estate Industrials Financials Consumer Healthcare Materials Retail Others

Source: ThomsonReuters, ChinaVenture and PwC analysis

PwC 14
And venture capital activity – though declining off its 2016 peak –
remains robust

Venture Capital Deals

No. US$ billion

3,000 4.0
3.4
3.5
2,500
2.8
3.0
2,000 2.3 2.5
1.9
1,500 2.0
1.2 1.5
1,000 1,893
0.8 1,601 1,599 1,520 1.0
500 0.4 1,134
888 0.5
446
0 -
1H14 2H14 1H15 2H15 1H16 2H16 1H17

Announced Deal Volume Announced Deal Value

Source: ThomsonReuters, ChinaVenture and PwC analysis

PwC 15
There was a significant upturn in exit-activity as financial
sponsors took advantage of high valuations and strengthening
equity markets, especially within China

PE/VC backed deal exit volume by type

250

8
200
50
6
150 37
29
33
32 30
100
47 6 161
34
7 131
50 47
89 34
59 55
30 34
0
1H14 2H14 1H15 2H15 1H16 2H16 1H17

IPO Trade sale other

Source: AVCJ and PwC analysis

PwC 16
IPO on the mainland A-share markets was the preferred exit route,
as high numbers of new IPOs were approved in the first half of 2017

PE/VC backed IPO exit volume by bourse

180 No.

1
4
150

4
120 14
78

90 48
1
11

60 35
8 5
4
13
76
30 30 15 - 3 65
8 12
40 2
16 22 20 17
0
1H14 2H14 1H15 2H15 1H16 2H16 1H17
Shenzhen Shanghai A Hong Kong NYSE/ NASDAQ Others

Source: CV Source and PwC analysis

PwC 17
Mainland China outbound M&A

PwC 18
 Under much-publicised curbs, outbound M&A fell 13% in value terms (and
would be around 30% down if Chinese national sovereign fund deals are
excluded); the value decrease was a result of fewer mega-deals (15 in 1H17
vs 23 in 2H16) with several of the usually more active players steering clear
of high profile deals

China mainland outbound deals

No. US$ billion
600 130.9
* 140

120
500

400
87.9
* 100

74.3 80
300 64.4
60
473 482
447
200
31.1 40
28.7 27.3
19.8
100 177 203
149 20
123

0 0
1H14 2H14 1H15 2H15 1H16 2H16 1H17

Announced Deal Volume Announce Deal Value

Source: ThomsonReuters, ChinaVenture, and PwC analysis
* Includes/excludes ChemChina’s acquisition of Syngenta at US$43 billion.
PwC 19
But outbound deal volumes were maintained or increased across
each of the three main sub-sectors (SOE, POE and financial) as
deals with clear strategic rationale continued to win support
China mainland outbound deals by investor type

No. US$ billion

600
60.0
500
40.0
95 121
400 100
20.0

300
0.0

316 295
200 293
-20.0
29 65
33
100 16
105 102 -40.0
75 70

46 43 62 54 66
32 36
- -60.0
1H14 2H14 1H15 2H15 1H16 2H16 1H17

SOE Announced Deal Volume POE Announced Deal Volume Financial buyer Announced Deal Volume
SOE Announced Deal Value POE Announced Deal Value Financial buyer Announced Deal Value

Source: ThomsonReuters, ChinaVenture, AVCJ and PwC analysis

PwC 20
Investment in technologies which can be repatriated into China are
a good example of supported deals, and this was the largest single
category (by number) of outbound deals by industry type

China mainland outbound deals by industry sector - volume

120 No.

100
12
80 60 10
6
60 40

65 8
59 12 5 9
40 14 49
9 10
16 3
5 2 31
46 32 39
20 41 28 29 40 15
33 25 30
26
17 16 13 19 16
3 7 7 5 6
0 2 2 1 - 3 3
High Technology Industrials Financials Consumer Healthcare Media and Entertainment Materials Others

2H16 SOE 2H16 POE 2H16 Financial buyers

1H17 SOE 1H17 POE 1H17 Financial buyers

Source: ThomsonReuters, ChinaVenture, and PwC analysis

PwC 21
Financial buyer outbound activity reached new records in both
value and volume terms – PEs with access to foreign funding were
active

Financial buyer backed China mainland outbound deals

140 23.8 25.0
22.0
120
20.0
100
14.8
15.0
80

60 121
10.0
7.0 6.6 95 100
40 5.7 6.0
65
5.0
20
33 29
16
0 -
1H14 2H14 1H15 2H15 1H16 2H16 1H17

Announced deal volume Announced deal size

Source: ThomsonReuters, ChinaVenture and PwC analysis

PwC 22
Despite suggestions that Chinese investors would avoid the US as an
investment destination, there was in fact an increase in deals into the US;
Asia also saw a sharp increase, partly influenced by Belt & Road related
investments
Outbound M&A deal volume by region of destination 1H17 vs. 2H16

Other North United States

America Europe Russia
Asia

27 8
10 19 108 130 146
148
95 133

7 7
11 14 43 23

2H16
South America Africa
1H17 Oceania
Source: ThomsonReuters and PwC analysis

PwC 23
Key messages

PwC 24
Key messages – China M&A in first half of 2017 (1 of 3)
Overall
• China M&A fell by 20% in the first six months
of 2017 to US$283 billion, but outbound
activity, though down 13% in value terms,
increased 8% by number of deals
• Deal values fell across the three main sub-
sectors (strategic, financial and outbound)
with fewer mega-deals
• Deal volumes also fell in strategic and financial
sectors, but – despite reported curbs –
outbound deal volumes increased by 8% to a
new half-year record of 482 transactions
PwC
Domestic and Foreign-Inbound Strategic
• Domestic strategic M&A declined by around
15% to touch three-year lows, with only 10
mega-deals valued at more than $1 billion
(compared to 15 in the prior six months);
foreign inbound investment – though much
smaller by comparison – was at its highest
level in two years, with some larger sized deals
and a step-up in investment from Japan
• Real estate M&A hit a three year high and
remains active, mainly because of two mega
deals ($18 billion in aggregate) involving
China Vanke; Technology deals also increased
in comparison to the last six months but only
to return to levels last seen in 2014
25
Key messages – China M&A in first half of 2017 (2 of 3)

PE/VC and financial buyer deals

• PE and financial buyer activity declined by around a quarter compared to the significant peak seen
in the last half of 2016, but activity remained robust overall, with both domestic and foreign PEs
active
• The involvement of PE and financial buyers in outbound M&A is now a well established sub-sector
of the market, accounting for nearly 25% of PE activity by value in the first half
• Technology and real-estate related investment activity remain most important for financial buyers,
accounting for nearly 50% by value
• Venture capital activity – though declining off its 2016 peak – remains robust
• There was a significant upturn in exit activity as financial sponsors took advantage of high
valuations and strengthening equity markets, especially within China
• IPO on the mainland A-share markets was the preferred exit route as high numbers of new IPOs
were approved in the first half of 2017

PwC 26
Key messages – China M&A in first half of 2017 (3 of 3)

Mainland China Outbound

• Under much-publicized curbs, outbound M&A fell 13% in value terms (and would be around 30%
down if Chinese national sovereign fund deals are excluded); the value decrease was a result of
fewer mega-deals (15 in 1H17 vs 23 in 2H16) with several of the usually more active players steering
clear of high profile deals
• But outbound deal volumes were maintained or increased across each of the three main sub-sectors
(SOE, POE and financial) as deals with clear strategic rationale continued to win support
• Investment in technologies which can be repatriated into China are a good example of supported
deals, and this was the largest single category (by number) of outbound deal by industry type
• Financial buyer outbound activity reached new records in both value and volume terms – PEs with
access to foreign funding were active
• Despite suggestions that Chinese investors would avoid the US as an investment destination, there
was in fact an increase in deals into the US; Asia also saw a sharp increase, partly influenced by Belt
& Road related investments

PwC 27
Outlook

PwC 28
Outlook – the next six to twelve months (1 of 4)

Overall
• Overall we expect China M&A to slow slightly in the second half of the year
• The 19th National Congress in October 2017 may result in some “wait and see” effect, and further
clarification of outbound restrictions in certain sectors will have some incremental effect
• Nevertheless, overall activity remains robust and we anticipate further growth in 2018
Domestic and Foreign-Inbound Strategic
• We think the volume of domestic strategic deals may decline slightly in the second half, with some
players waiting for the National Congress results
• But there could be some larger sized transactions around SOE reforms in particular, so values could
increase somewhat
• For foreign inbound, we expect continued interest in R&C (consumer potential and generally fewer
regulatory hurdles), pharma & healthcare (still opportunities for foreign investors around ageing
populations), and infrastructure (Belt & Road opportunities for foreign players working with local
businesses).

PwC 29
Outlook – the next six to twelve months (2 of 4)

China Outbound
• With the Chinese government’s enactment of new outbound regulations issued on 18th August 2017,
the guidance for “encouraged”, “restricted” and “banned” outbound investments are finally clarified,
although such practice has already been enforced by relevant authorities since last November
• While Belt & Road infrastructure, industrial upgrade, economically feasible natural resources
exploration, agriculture and modern service industries investments are encouraged and expected to
grow in future, increased scrutiny will be placed on certain industries such as real estate/hotels, cinema
chains, and entertainment including sports clubs
• Some on-going transactions in the above mentioned restricted industries will be negatively affected by
the new regulation
• Generally speaking, US dollar funds, overseas-listed companies and companies with overseas financing
channels will still have an advantage over investors with only RMB funding sources
• Chinese companies will, however, still be motivated by factors to make moves abroad in the medium to
long term, along with clearer regulations and enforcement
• Overall, the value of overseas investments in 2017 will be notably lower than in 2016 with volumes
likely to be broadly comparable
• We expect a gradual recovery in deal values and further growth in volumes in 2018.

PwC 30
Outlook – the next six to twelve months (3 of 4)

Private equity (and other financial investors)

• Unprecedented amounts of capital are now in play from “Big Asset Management”, including insurers
(and other financial institutions); government and industry funds; SOE funds; and private-company
funds
• With pressure to defray this wall of money, we expect financial buyer activity to continue to increase in
the mid to long term, with outbound M&A a particular driver of growth – though with a shift to
favouring investors with access to US$ capital
• Domestic M&A may also see some increase as Rmb players are forced to turn their attention closer to
home
• The 19th National Congress in October 2017 may also result in some “wait and see” effect in the second
half of the year
• We expect exit activities in the next six to twelve months will keep their momentum, with traditional
PEs still facing some challenges around exits in accessing A-share IPOs, and growth over 2016 with
trade sales and (in the slightly longer term) secondary (PE to PE deals) increasing in importance
• Overall, we think full year 2017 activity will be slightly lower than 2016 (which saw a spike in activity in
its second half) but still stronger than 2015 and growing further in 2018, with the wall-of-money effect
offsetting some of the more negative factors affecting the market.

PwC 31
Outlook – the next six to twelve months (4 of 4)

Key industry sectors

• Real estate
- With improving macro-economic trends, more stable growth in the real estate market is anticipated
- But because of unbalanced regional development, policy constraints and funding restrictions,
domestic M&A activities and market consolidation in the real estate sector are likely to increase
further
- Corporations that have sufficient land and capital reserves may grow rapidly in a highly competitive
domestic market
- However, as government measures to discourage irrational overseas investment in certain areas
(including real estate, hotels, film, entertainment and sports clubs) take effect, traditional real estate
outbound M&A activity is expected to decrease in the near future
- Real estate corporations may also change their outbound investment strategies
• Technology
- We saw relatively high deal volume in technology but generally lower deal values, as activity is in start
ups and new technology (AI, robotics, etc.) - this trend is expected to continue
- Continued domestic consolidation will drive more domestic activity, whilst technology related Belt &
Road opportunities are likely to increase.

PwC 32
Data compilation methodology and disclaimer

Statistics contained in this presentation and the press release may vary from those contained in
previous press releases. There are three reasons for this: ThomsonReuters and ChinaVenture
historical data is constantly updated as deals are confirmed or disclosed; PricewaterhouseCoopers has
excluded certain transactions which are more in the nature of internal reorganisations than transfers of
control; and exchange rate data has been adjusted.
Included Deals Excluded Deals
• Acquisitions of private/public companies resulting in change of control • Property/real estate for individual properties
• Investments in private/public companies (involving at least 5% • Rumoured transactions
ownership) • Options granted to acquire an additional stake when not 100%
• Mergers of the shares has been acquired
• Buyouts/buyins (LBOs, MBOs, MBIs) • Any purchase of brand rights
• Privatisations • Land acquisitions
• Tender offers • Equity placements in funds
• Spinoffs • Stake purchases by mutual funds
• Splitoff of a wholly-owned subsidiary when 100% • Open market share buyback/retirement of stock unless part of
sold via IPO a privatisation
• Divestment of company, division or trading assets resulting in • Balance sheet restructuring or internal restructuring
change of control at parent level
• Investments in greenfield operations
• Reverse takeovers
• Going private transactions
• Re-capitalisation
• Joint Venture buyouts
• Joint Ventures
• Receivership or bankruptcy sales/auctions
• Tracking stock

PwC 33
Thank you

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