Steep Slowdown For Chinese Cross-Border Corporate Acquisitions

$246 billion in cross-border corporate acquisitions last year, and now China’s buyout frenzy seems poised to quiet down quite a bit.

Bloomberg News reported Wednesday that dealmakers on China’s mainland are “struggling to cope with tighter capital controls” and a more cautious deal-making landscape. Such constraints have had an impact on merger activity. The buyouts dropped by 67 percent though the first four months of 2017. The drop is reminiscent, said the newswire, of the cliff-dive seen in the nadir of the great financial crisis.

Looking for a rebound? The wait may be a bit of a long one. Analysts have said moving money across borders is getting harder for Chinese firms, which means buying firms is getting harder too. The firms that are targeted are also putting in place some expensive caveats: penalties that Chinese firms have to pay if deals do not close. These “break fees” can be as high as 10 percent of a deal’s headline price tag, up from 2 percent seen in past years.

The hurdle is a tough one, as, through the end of the third quarter of this year, Chinese regulators are looking to limit transactions that are higher than a $1 billion price tag if those firms are outside the buyer’s “core” business focus. Investments would be topped off at $10 billion.

High-profile casualties of the skittishness include one seen last month, when Chinese developer Shandong Tyan Home Co., Ltd walked away from talks to acquire Barrick Gold Corp.’s holdings in an Australian mine for $1.3 billion.