What Chinese investors are buying where in Europe and the US

HONG KONG - Chinese investors poured a record US$40 billion into Europe and North America in 2015, spending US$29 billion, or 73% of the total in just four industries - real estate and hospitality; automotive; financial and business services; and information technology, according to an upcoming report from lawyers Baker & McKenzie.

The first six weeks of 2016 have been the busiest period on record for announced Chinese M&A activity in Europe and North America, with US$70 billion of potential deals in the pipeline.

The report looks at the similarities and differences in trends between the two regions. It examines only completed rather than announced investments, and includes greenfield investments as well as acquisitions.  It will be available in May.

"These are turbulent economic times, yet we see Chinese companies acting with confidence and continuing to make major moves in Europe and North America," said Michael DeFranco, Chair of B&M’s Global M&A Practice.

 "Chinese companies are sophisticated buyers, using varied structures to access new markets or sectors.  There is strong growth in small and medium-sized M&A deals, a willingness to do deals that result in smaller or minority stakes rather than outright acquisitions, and greater activity by financial investors, including private equity funds," he said.

In 2015 the top five EU countries by investment value were Italy (US$7.8bn), France (US$3.6bn), the UK (US$3.3bn), The Netherlands (US$2.5bn) and Germany (US$1.3bn), accounting for 78 per cent of total European investment.  

Investment more than doubled in Italy and France driven by megadeals, but declined by 35%in the UK after an exceptional 2014. B&M says the Netherlands is emerging as a popular location for Chinese companies and acquisitions, particularly in technology and financial services.

Chinese investment into Switzerland jumped from virtually zero in 2013 and 2014 to US$1,27bn in 2015, a very close sixth in Europe behind Germany. Norway and Belgium also emerge as significant destinations,

In the US, the top three states for FDI were New York, California and Texas. New York saw a 274% increase to US$5.4 billion of investments in 2015, led by three major financial services and real estate deals. Canada saw the lowest levels of Chinese FDI since 2009.

For larger deals in the US, Chinese investors continue to prefer to take majority or full ownership.

B&M says several clear trends emerge that are common to Chinese investment in both the US and Europe.

Chinese companies have been acquiring household names to access technology and advanced manufacturing, build global brands and increase know-how in services.

Buying up real estate and investing in infrastructure for long-term returns, on the other hand, may be a hedge against an economic slowdown in China, the report says. Private investors, State-owned enterprises, and sovereign entities have put more than $18.3 billion into real estate in both regions over the past five years.

Europe has been a much greater attraction for Chinese investors seeking advanced manufacturing assets, while North America has received more than twice as much investment in advanced services compared to Europe.

Activity in the US last year was primarily driven by Real Estate & Hospitality and Financial and Business Services sectors, with two thirds of total investment going into services, up from 14% in 2009. 

Investment in advanced service sectors in both regions has grown rapidly as Chinese companies target brands, talent, and other assets that increase their competitiveness at home and abroad.

 In the US, software is one key sector, with US$2.5 billion of investment from 2008 to 2015.

Entertainment also jumped in the past two years in both Europe and North America, reaching a record of US$2.9 billion in 2015. Investments in hospitality have grown to more than $6 billion in 2015 as Chinese outbound tourism soars.

Chinese companies have recently also developed an appetite for financial sector assets in both Europe and North America, with US$4.6 billion invested in 2015 alone—which is more than total Chinese investment in financial services in the previous 14 years.

A few industries show similar levels of investment across the two regions since 2000. These include the real estate and hospitality sector (US$13.1 billion in Europe and US$13.2 billion in North America) and the agriculture and food sector (US$7.1 billion in Europe and US$7.4 billion in North America). www.bakermckenzie.com (ATI).