China M&A back on upwards trajectory amid favourable market conditions

Mergers and acquisitions (M&A) activity in mainland China is likely to see high double-digit growth this year amid ongoing consolidation and multinational companies reshaping their portfolios in the world's second-largest economy, according to PwC.

Several positive changes, including reforms in state-owned enterprises, the rise of Chinese AI start-up DeepSeek's spillover effect on the economy and stock market rallies, supported the upwards trajectory, according to the consultancy.

"There is confidence returning to the market, as investors are willing to invest larger amounts of capital in M&A," said Thomas Crasti, PwC Hong Kong M&A advisory partner, in a briefing on Monday. "That confidence is really shining through in the domestic M&A activity."

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In the first half of this year, the value of M&A transactions on the mainland rose 45 per cent year on year to US$171.5 billion, according to PwC. However, the tally was far lower than the peak levels seen between 2016 and 2021, when at least US$250 billion of deals were recorded during the same period in each of those years.

Thomas Crasti (left), PwC Hong Kong M&A advisory partner and Jeremy Ngai, PwC China South and Hong Kong tax leader with the mid-year China M&A report released on Monday. Photo: Aileen Chuang alt=Thomas Crasti (left), PwC Hong Kong M&A advisory partner and Jeremy Ngai, PwC China South and Hong Kong tax leader with the mid-year China M&A report released on Monday. Photo: Aileen Chuang>

There were 29 mega deals valued at more than US$1 billion compared with 17 and 19 in the first half of 2024 and 2023, respectively. Hi-tech, healthcare and industrial sectors dominated domestic M&A activity.

The semiconductor industry saw rapid consolidation amid US export restrictions. In May, supercomputer maker Sugon and chip designer Hygon Information Technology announced a merger. It followed Naura Technology Group, China's chip equipment giant, acquiring a 9.5 per cent stake in photolithography coating equipment maker Kingsemi for 1.69 billion yuan (US$235 million) in March.

Valuation gaps in mainland China's M&A market narrowed thanks to stock market rallies, which increased deals for private equity companies exiting portfolio companies and multinationals divesting their Chinese units, according to Crasti.

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On Monday, the Shanghai Composite Index rose to a fresh 10-year high, while Hong Kong's benchmark Hang Seng Index has rallied more than 26 per cent this year.

With rising confidence in the economy and improved stock market activity and valuations, "we're seeing a situation where there is more confidence among private equity sponsors to bring these assets to market", he said. "Based on the activity we see, there's a number of sale processes under way."

Many multinationals have been revisiting their views on China and identifying divestments of their China assets, Crasti said.

Starbucks was making progress with the sale of its China business and had received interest from more than 20 potential buyers, its CEO said in July. General Mills, which owns ice cream brand Haagen-Dazs, was reportedly working on a potential sale of its 250-plus stores in China.

On China's outbound M&A market, PwC said the activity was weighed down by geopolitical challenges. Only three mega deals were announced in the first half, including Tencent Holdings' US$1.2 billion investment in the French video gaming company Ubisoft.

"China's outbound M&A trend is unlikely to change, but it will shift from its previous focus on Europe and the US to countries in the Belt and Road Initiative," said Jeremy Ngai, PwC China South and Hong Kong tax leader.

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2025 South China Morning Post Publishers Ltd. All rights reserved.

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