HONG KONG: Mainland companies will further increase their overseas merger and acquisition (M&A) deals by 40 percent in 2010, as companies in the country are becoming more confident and ambitious regarding overseas expansion, international accounting firm PricewaterhouseCoopers (PwC) said yesterday.

PwC said deals for energy and resources would continue to dominate the market, while owners of the larger mainland privately- owned enterprises are also looking for access to foreign markets.

For the full year of 2009, overseas deal volumes are likely to reach a record level of around $30 to $35 billion, more than three times higher than 2008, the accounting firm noted.

Danny Po, PwC's China national M&A tax leader, said the value of overseas deals, despite the prosperous outlook, accounts for only a third of the value of domestic and inbound transactions on the mainland this year.

"With the central government's encouragement and the trend of mainland companies wanting to expand overseas, we are expecting to see overseas transactions to continue growing next year," Po said.

The largest announced deal for this year was the $8.9 billion offer by the country's largest refiner Sinopec for Swiss Addax Petroleum in the first half of 2009, while four other overseas deals in the energy and resources sector, valued over $1.5 billion in total, were also announced in the second half.

Apart from the growth in overseas deals, PwC also expects M&A activity on the mainland to pick up by more than 20 percent next year, as compared to 2009.

PwC said growing investor confidence and healthy rates of economic growth focused on increasing domestic consumption have been fueling M&A activity within the mainland.

David Brown, transactions partner at PwC, said volumes of domestic deals and inbound deals by foreign investors in the second half of 2009 have returned to 2008 levels with more than 1,800 transactions likely to be announced in the second half, compared to around 1,400 transactions in the first half.

The financial services industry was the sector with the highest announced deal value in 2009, followed by the real estate sector. Meanwhile, the manufacturing industry was the most active sector by number of deals.

"Industry on the mainland is still highly fragmented, so there is a lot of opportunity to consolidate," Brown said, adding that M&A would be helpful for market consolidations.

He added the pharmaceutical industry, one of the most fragmented sectors on the mainland, is likely to carry out consolidation through M&A deals.

Brown, however, noted that foreign strategic deal activity has declined almost 40 percent this year from 2008 levels, as foreign buyers have been sorting out problems in their home markets and shifting their focus away from expansionary acquisitions.

(HK Edition 12/16/2009 page4)