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China Private Equity/Venture Capital 2016 Review and 2017 Outlook
23 February 2017
www.pwc.cn.com
PwC
Content
Fund Raising 3
Investment Deals 8
Exit 15
2017 Outlook 20
2
PwC
Fund Raising
3
PwC
Driven by a substantial increasing amount of RMB fund-raising, US$72.51 billion was raised by China PE and VC in 2016, creating a new historical record. The RMB fund valued at US$ 54.89 billion showed a 177% growth over the last year
4
AVCJ and PwC Analysis
PE/VC fund raising for China investment
21.1 19.429.2 29.2
17.62
20.413.0
21.2 19.8
54.89
123130
118
137
83
0
20
40
60
80
100
120
140
160
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
80.0
2012 2013 2014 2015 2016
Non RMB fund size RMB fund size Fund volume
No.US$ billion
PwC
From 2012 to 2015, the ratio of non RMB funds and RMB funds generally remained stable. Nonetheless, the portion of RMB funds surged from 40% to 76%, becoming a dominant force in the market in 2016
5
The scale trend of RMB funds (2012 — 2016)
RMB fundsNon RMB funds
49%40% 42% 40%
76%
51%60% 58% 60%
24%
0%
20%
40%
60%
80%
100%
2012 2013 2014 2015 2016
Source: AVCJ and PwC analysis
PwC
From 2006 to 2016, the China market (including Hong Kong) raised a total of over US$532 billion, maintaining its position of dominance in the Asian PE and VC market *Note: the figures do not include
funds raised in other markets specifically for investing in the China market
$532
$66 $75 $81$43 $38 $27
0
100
200
300
400
500
600
China/Hong Kong Japan India South Korea Singapore Australia Others
US$ billion
6
Total funds raised by countries in Asia (2006 — 2016)
Source: AVCJ
PwC
In the backdrop of a slight reduction in the scale of global PE and VC fund raising, the funds raised in the Chinese market increased significantly (49%) in 2016
$223
$308 $340 $347 $336
$42 $32$50 $49
$73
0
100
200
300
400
2012 2013 2014 2015 2016*
US$ billion
Global China
7
Comparison between China and global PE & VC fund raising (2012 — 2016)
Source: Thomson Reuters, www.preqin.com and PwC analysis
PwC
Investment Deals
8
PwC
As global trading value fell 38%, total China PE and VC-led M&A deal value continued growing steadily to reach US$ 223 billion, accounting for 73% of global PE/VC deal values and setting a new record in 2016
279314
364
423
306
35 3468
182
223
0
50
100
150
200
250
300
350
400
450
2012 2013 2014 2015 2016
US$ billion
Global China
9
Comparison between China and global PE and VC deal values (2012 — 2016)
Source: ChinaVenture, www.preqin.com and PwC Analysis
PwC
Financial buyer deals (2012-2016)
10
359 392 593
1,063
1,767
35.4 33.6
67.8
182.1
222.9
0
50
100
150
200
250
0
400
800
1,200
1,600
2,000
2012 2013 2014 2015 2016Announced deal volume Announced deal value
Number of deals US$ billion
Even after a year of robust growth in 2015, PE M&A deals set a new record in 2016 by increasing 66% to US$ 222.9 billion -- this growth was primarily driven by the participation of BAM investors who dominated many of the large deals, and PE funds’ growing focus on overseas markets
*Outbound M&A supported by financial investors was also recorded as PE deals. VC deals were not included..Source: Thomson Reuters, ChinaVenture and PwC analysis
PwC
473 7381334
2735
3492
0.9 0.8 1.3
4.2
5.9
0
1
2
3
4
5
6
7
0
1,000
2,000
3,000
4,000
2012 2013 2014 2015 2016
Annouced deal volume Annouced deal value
Number of deals
VC investment activity has increased dramatically from 2012 to 2016. Today, VCs are six times more active in the Chinese market than they were four to five years ago
11
VC deals (2012-2016)
Source: Thomson Reuters, ChinaVenture and PwC analysis
PwC
In terms of deal volume, high technology is still PE funds’ most favoured sector in 2016, followed by industry. In addition, real estate, media and entertainment, consumer, financial services and healthcare were also popular sectors
12
55 36 49
224
423 417
9946
85
85
153335
126
7473
102
132
145
24
2219
35
72
105
13
2431
23
61
189
30
4633
35
59
109
73
4962
23
42
134
46
2016
22
31
71
12
10
7
15
29
89
16
12 6
14
15
51
0
400
800
1200
1600
2011 2012 2013 2014 2015 2016High technology Industry Consumer Financial services Real estate Healthcare Materials Media and entertainment Energy Retail Others
Number of deals
PE deal volume by investment sector
Source: Thomson Reuters, ChinaVenture and PwC analysis
PwC
PE deal value by investment sector (2012-2016)
In terms of deal value，PE investment in real estate driven by BAM and outbound M&A nearly doubled in 2016. In addition, the consumer sector set a new record. High-tech M&A activity remained brisk, but show signs of slowing down when compared to 2015 (Several large transactions were completed in 2015)
13
3.1 5.9 12.6
72.8
42.42.8 4.1
8.9
18.7
41.4
1.83.6
9.0
16.130.1
3.24.0
9.6
16.9
25.0
11.3 2.5
3.7
23.220.0
4.4 1.3
2.4
5.5
12.9
1.71.3
1.6
8.7
11.1
0.40.1
14.6
2.8
13.2
6.7 10.8
5.4
17.3
26.8
0
40
80
120
160
200
2012 2013 2014 2015 2016
High technology Industry Real estate Consumer Financials Media and entertainment Healthcare Retail Others
US$ billion
*Not including VC deals (deals of around US$5.9 billion were mostly in the high-tech sector)Source: Thomson Reuters, ChinaVenture and PwC analysis
PwC
Chinese PE/VC funds’ overseas M&A activities have taken off rapidly, becoming a force to be reckoned with, with 2016 M&A deal volume more than doubling that of 2015; investors pursued overseas assets “with a China angle” and aligned with their growth strategies, while focusing on geographical and currency diversification
14
26 25 49
95
195
9.6
1.0
13.3 15.3
38.1
-
50
100
150
200
250
2012 2013 2014 2015 20160
5
10
15
20
25
30
35
40
45
Annouced deal volume Annouced deal value
Number of deals
Overseas M&A deals backed by mainland Chinese financial investors
Source: Thomson Reuters, ChinaVenture and PwC analysis
PwC
Exit
15
PwC
98
35
114 119
165
37
59
81 64
44 81
87
55
62 10
13
16
10
11 2
-20
30
80
130
180
230
280
2012 2013 2014 2015 2016IPO Trade sale Open market sale Secondary buyout Liquidation
Traditional PE exit volume remained stable, but IPO exits reached a new height with 165 deals, a 38.7% increase from last year, while M&A exit deals fell unexpectedly to the lowest level in four years
16
Source: AVCJ and PwC analysis
Number of deals
PE/VC-backed deals exit volume (by type)
PwC
Chinese enterprises remain confident about the IPO market. And IPO exits will continue to be the primary exit strategy of PEs and VCs
128 9
18 21
11
7
2
36
4
14
6
4
3
4
2
1
28
2
0
10
20
30
40
50
60
2011 2012 2013 2014 2015 2016
US$ Billion
Hong Kong Shanghai Shenzhen NYSE/NASDAQ Others
1717
PE/VC-invested enterprises IPO and exit values (by bourse) (2011 — 2016)
Source：AVCJ
PwC
PE investors tend to prefer ‘A’-share markets for their higher valuations compared to overseas. The deal volume of Shenzhen Stock Exchange and Shanghai Stock Exchange increased by 56% and 8%, respectively in 2016
1129 38 31
17 11
0
17 37 60 70
0
45
48
82
2
6
13 1
3
4
0
1 2
5
0
20
40
60
80
100
120
140
160
180
2012 2013 2014 2015 2016
Hong Kong Shanghai Shenzhen New York/NASDAQ Others
18
Number of deals
PE/VC listing and backed deal exit volume (by bourse) (2011 — 2016)
Source：AVCJ
PwC
903486 738
1,334
2,735
3,492
529
358392
593
1,062
1,767
116 130 163 148 101 44171 98 35 114 119 165
0
1,000
2,000
3,000
4,000
5,000
2011 2012 2013 2014 2015 2016
VC PE Trade sale IOP
19
Number of deals
Total PE/VC-backed exit deal volume basically commensuratedwith that of 2015, while the backlog of projects awaiting exit continue to face challenges
PE/VC-backed deal volume and exit volume
Source: Thomson Reuters, ChinaVenture, AVCJ and PwC analysis
PwC
2017 Outlook
PwC
2017 Outlook
• Fund raising will keep growing in 2017
• 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, which will give rise to competition
• As the pressure to invest large sums of available funds increases, we expect an increase in PE/VC M&A activities. In outbound activities, the market will favour financial investors with access to capital denominated in US dollars
• The most favoured sectors for PE/VC in 2017: high technology, financial tech, media and entertainment, healthcare, real estate and consumer
• PE/VC funds will continue to face exit challenges. Though the valuation may go down, exit through A share market are expected to accelerated. Overseas listings will also increase, especially in high tech industry.
21
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