Surge of Cross-Border M&A Deals by Chinese Banks Is Creating Opportunities for Foreign Banks, Says Report by The Boston Consulting Group
Chinese Banks Have Good Reason to Venture Abroad but Face a Range of Challenges as They Pursue Cross-Border Deals
BOSTON, MA--(Marketwire - September 18, 2008) - Chinese banks have been pursuing larger, more
ambitious M&A deals. Many deals have involved taking stakes in foreign
institutions, according to a report by The Boston Consulting Group (BCG).
The report, titled "Venturing Abroad: Chinese Banks and Cross-Border M&A,"
is being released today.
From 1993 through 2005, Chinese banks made an average of about one
cross-border acquisition per year. Most deals were valued at under $20
million. Since then, Chinese banks have made 11 cross-border M&A deals.
Five of these were worth at least $1 billion.
"Chinese banks face a range of challenges as they pursue overseas M&A
deals," said coauthor Tjun Tang, a partner in BCG's Hong King office, "but
they are moving inexorably toward a more international profile. Their size
alone makes them capable of influencing markets, particularly if they can
harness the momentum of China's global challengers -- dynamic companies
that are heading abroad.
"To build strong international positions, however, Chinese banks still need
to develop core skills and capabilities," Tang said. "M&A deals can help
accelerate this process. In the meantime, the surge of cross-border M&A by
Chinese banks is likely to be more of an opportunity than a threat to
foreign banks."
Cash-rich Chinese banks can help foreign banks weather the current
financial crisis. Several Western banks have already courted foreign
investors. Foreign banks could also look for opportunities to provide
Chinese banks with the presence to serve their globalizing customer base.
"Chinese banks want true partnerships," said coauthor Holger Michaelis, a
partner in BCG's Beijing office. "They are not just looking for ways to
spend their capital. They're searching for ways to acquire new
capabilities, enhance their offerings, and leverage their emerging-markets
skills."
In addition, Western banks, particularly those that have been hit hard by
the crisis, might consider selling business lines as a way to free up
capital and refocus on core objectives. "Chinese banks have both the
capital and the incentive to make such purchases," Michaelis said. "They
are not direct competitors -- at least not yet -- and therefore present a
better option for banks seeking to divest business lines."
The Challenges of Cross-Border M&A
Growth is the common denominator for cross-border M&A, but the report also
cites other reasons for these deals, such as deploying excess funding,
going global, acquiring capabilities, and diversifying the business.
"Chinese banks have good reason to pursue cross-border deals," said
coauthor Frankie Leung, a partner reporting BCG's Hong Kong office. "But
some investors and analysts believe they should concentrate on
opportunities closer to home, given the country's strong growth. They've
also questioned whether Chinese banks have a clear strategy -- along with
the skills and resources -- for venturing abroad."
The report is the result of an in-depth study that involved extensive
interviews with leading Chinese banks and regulatory officials -- along
with financial investors, investment banks, and other market participants,
both inside and outside China.
"Mergers and acquisitions are inherently risky and complex," Leung said.
"Cross-border deals tend to pose even great challenges than domestic
deals." The report describes the steps that Chinese banks can take to build
and execute a strategy for cross-border M&A, beginning with a clear logic
that spells out the role of international expansion in a bank's overall
strategy and vision.
To receive a copy of the report or arrange an interview with one of the
authors, please contact Eric Gregoire at +1 617 850 3783 or
gregoire.eric@bcg.com.
About The Boston Consulting Group
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