M&A 2011 Review andM&A 2011 Review and2012 Outlook Press BriefingPwC Greater China Private Equity Group Leader David Brownq y pPwC Hong Kong Advisory Partner Christopher Chan

13 Jan 2012

Foreword – explanation of data shown in this Foreword explanation of data shown in this presentation (1/2)

• The data presented is based on information compiled by ThomsonReuters, Chi d C l i l d h iChinaVenture and PwC analysis unless stated otherwise

• Thomson Reuters and ChinaVenture record announced deals. Some announced deals will not go on to complete

• The deal volume figures presented in this report refer to the number of deals announced, whether or not a value is disclosed for the deal

• The deal value figures presented in this report refers only to those deals where a value has been disclosed (referred to in this presentation as “disclosed value”)

• “Domestic” means China including Hong Kong and Macau

• “Outbound” relates to mainland China company acquisitions abroad

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Foreword – explanation of data shown in this Foreword explanation of data shown in this presentation (2/2)

• “Strategic buyer” refers to corporate buyers (as opposed to financial buyers) h i i i h h bj i f i i h i i i ithat acquire companies with the objective of integrating the acquisition into

their existing business

• “Financial buyer” refers to investors that acquire companies with the bj ti f li i t th i i t t b lli th b i t objective of realising a return on their investment by selling the business at a

profit at a future date and mainly, but not entirely, comprise PE and VC funds

• 1HXX means first six calendar months of 20XX• 1HXX means first six calendar months of 20XX

• 2HXX means second six calendar months of 20XX

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Key messagesKey messages

• Overall China M&A activity in 2011 was up 5% compared to the previous year to 5 364 transactions the highest annual total everprevious year, to 5,364 transactions – the highest annual total ever

• China Outbound continued its inexorable rise climbing to a new record of 207 deals (up by 10%) worth US$42.9bn (up by 12%)

d f i i i h l i d d l• 2011 was a record year for Private Equity, with 437 larger sized deals (defined as greater than US$10mn) up by 18%, valued at US$31.2bn up by33%）

D ti t t i M&A d h d b % ith 6 d l• Domestic strategic M&A powered ahead by 11% with 3,262 deals

• But foreign strategic buyers pulled in their horns, falling by 11% to 482 transactions due to fewer deals done in the second half of 2011

• We expect these trends to continue into 2012, despite challenging global economic conditions

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Overall China M&A activity in 2011 was up 5% Overall China M&A activity in 2011 was up 5% compared to the previous year, to 5,364 transactions – the highest annual total ever

% Diff volume 2008 2009 2010 1H11 2011

Total deal volume and value, from 2008 to 2011

Volume Value Volume Value Volume Value Volume Value Volume Value Strategic buyers (US$bn) (US$bn) (US$bn) (US$bn) (US$bn)

Domestic 3,006 136.7 2,774 92.6 2,947 130.6 1,570 54.0 3,262 114.9 11%Foreign 614 17.6 409 10.4 539 16.8 267 8.0 482 16.9 -11%

Total Strategic buyers 3,620 154.3 3,183 103.1 3,486 147.4 1,837 62.0 3,744 131.8 7%

2010 vs. 2011

(1)

Financial buyersDeal size > US$10 million 335 20.0 228 20.6 371 23.5 210 16.7 437 31.2 18%Deal size < US$10 million or undisclosed 724 1.6 738 1.6 1,066 2.3 562 1.0 976 1.8 -8%

Total Financial buyers 1,059 21.6 966 22.3 1,437 25.8 772 17.8 1,413 33.0 -2%

Outbound 126 9.4 144 30.3 188 38.2 101 9.4 207 42.9 10%

Total 4,805 185.3 4,293 155.7 5,111 211.4 2,710 89.2 5,364 207.7 5%

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Source: ThomsonReuters, ChinaVenture and PwC analysis

(1) Including 2 banking deals and 1 auto deal for US$14.2bn

China Outbound continued its inexorable rise climbing to China Outbound continued its inexorable rise climbing to a new record of 207 deals (up by 10%) worth US$42.9bn (up by 12%)

40 0120

Outbound investment from China, from 2008 to 2011US$ billionNo.

30.0

35.0

40.0

100

120

• Outbound activity by mainland Chinese buyers continued to grow strongly, with growth of 10% by deal number and 12% in deal value

(2)

20.0

25.0

60

80 number and 12% in deal value

• Both deal numbers and deal values hit new records, continuing a trend seen over the past several years

(1)

10.0

15.0

20

40

seen over the past several years

• 16 deals with a value exceeding US$1bn were announced in 2011, compared to 12 for 2010, of which 14

-

5.0

-1H08 2H08 1H09 2H09 1H10 2H10 1H11 2H11

Announced Volume Disclosed Deal Value

compared to 12 for 2010, of which 14 were in the resources and energy sectors

Source: ThomsonReuters and PwC analysis

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y(1) Including 3 energy deals for US$10.8bn(2) Including 5 energy deals for US$16bn

Outbound resources and energy deals continue to Outbound resources and energy deals continue to dominate; but the industrial and consumer sectors grew strongly as Chinese companies continue to seek processes, know how IP and brands to bring back to China

Financial Services

Healthcare3%

Media and Entertainment

1%Retail2%

Others3%

Media and Entertainment

3%

Retail2%

Others9%

55

know-how, IP and brands to bring back to ChinaOutbound deal volume by industry 2010 Outbound deal volume by industry 2011

Raw materials27%

High Technology9%

Financial Services5%

19

11

73 4 6

Raw materials36%

High Technology13%

Financial Services2%

Healthcare4%

3%

3

24

67

75

4 17

56

Industrials19%

Energy and Power15% 39

32

30

Industrials13%Consumer Related

9%

Energy and Power9%

1825

18

Consumer Related16%

9%

• Deals in the resources and energy sectors continued to dominate, representing 42% of the number of outbound transactions on a combined basis compared to 44% in 2010. This sector also accounted for 83% of deal values and 14 out of the 16 deals valued at over US$1 bn

Source: ThomsonReuters and PwC analysisNote: Raw materials include mining, metals and chemicals.

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of deal values and 14 out of the 16 deals valued at over US$1 bn

• However, the industrial and consumer sectors also grew strongly (35% of deals compared to 22% in 2010)

7

The search for leading technologies, know-how and brands The search for leading technologies, know how and brands was reflected in the active geographies with developed economies such as North America and Europe accounting for nearly half of all outbound transactions

• Europe emerged as a key destination in 2011, up 76% on 2010, which reflected the outbound M&A trends in the industrial

Outbound investment by region 2010 vs. 2011

North AmericaEurope Asia

for nearly half of all outbound transactions

Russiaband consumer sectors

• With 56 announced deals, Asia represented the second largest Chinese outbound M&A investment destination in 2011 Roughly 6

57 4425523 1

investment destination in 2011. Roughly half of these transactions were into Japan and Singapore with 16 and 11 deals respectively

Th b f t ti i th th

56

10

34

5

55

179

27• The number of transactions in the southern

hemisphere, of which nearly three quarters were energy and resources related, remained relatively stable with 49 announced deals in 2011 compared to 53 in 2010

South America

Africa

Oceania

2010

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2011 compared to 53 in 2010

Source: ThomsonReuters and PwC analysis

20102011

8

2011 was a record year for Private Equity, with 437

• PE is emerging as a key provider of capital to the private

2011 was a record year for Private Equity, with 437 larger sized deals (defined as greater than US$10mn), an increase of 18%, valued at US$31.2bn - up 33%

Total PE deals > US$10 million, from 2008 to 2011

16.0

18.0

200

250

• PE is emerging as a key provider of capital to the private sector of China's economy

• 2011 was a very strong year for PE driven by a number of factors:

D d f SME f th it l i h

Total PE deals > US$10 million, from 2008 to 2011US$ billionNo.

(1)

10.0

12.0

14.0

150

200 Demand from SMEs for growth capital, since such companies struggled to access bank financing or local capital markets and funding from the grey lending market is expensive

Low stock market valuations leading to opportunities for

(1)

(2)

4 0

6.0

8.0

100

Low stock market valuations leading to opportunities for private investment in publicly listed equity (PIPE) deals

Some activity around Chinese companies with troubled overseas listings, especially the US

• Deal sizes increased with 50 deals larger than US$100mn in

-

2.0

4.0

-

50

1H08 2H08 1H09 2H09 1H10 2H10 1H11 2H11

• Deal sizes increased, with 50 deals larger than US$100mn in 2011 compared to 47 in 2010. The overall value of these deals increased by 33% to US$20bn; overall capital invested, at US$33bn, was a record

• Although the emergence of the domestic Chinese PE industry

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Announced Volume Disclosed Deal valueg g y

is a key trend, 6 out of the 10 biggest China PE deals in 2011 were carried out by overseas PEs, who continue to play an active role in the market 9

Source: ThomsonReuters, ChinaVenture and PwC analysis

(1) Including 23 deals larger than US$100mn (2) Including 2 banking deal s for US$9.7bn

Larger sized Private Equity deals mainly covered the Larger sized Private Equity deals mainly covered the industrial and consumer sectors with PE buyers targeting businesses which could benefit from increased domestic consumption

8.8

7.2

7.2 Consumer related

Financial Services

114

76

90 Consumer related

I d i l

consumptionFinancial buyer Deals (>=US$10mn)– Top 10 sectors by number of deals, 2010 vs. 2011

Financial buyer Deals (>=US$10mn)– Top 10 sectors by deal value (US$ billion), 2010 vs. 2011

3.4

3.3

2.3

5.7

0.9

Financial Services

Industrials

Media and Entertainment

76

65

46

81

26

29

Industrials

Media and Entertainment

High Technology

(1)

2.2

1.4

1.3

1.3

1.1

Energy and Power

High Technology

Materials

36

27

24

34

36

Energy and Power

Materials

Healthcare

1.0

0.9

1.2

0.6

1.4

Materials

Real Estate

Healthcare

2011 2010

15

11

38

14

6

Healthcare

Financial Services

Real Estate

2011 2010

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0.9 0.5

Retail11 7

Retail

2011 2010

10Source: ThomsonReuters, ChinaVenture and PwC analysisNote: Raw Materials include mining, metals and chemicals.

(1) Including 2 logistics deals for US$1.9bn

Private Equity fundraising reached record highs in Private Equity fundraising reached record highs in 2011, with Rmb funds accounting for 60%; exits held up relatively well in the face of difficult market conditions

1 640.0 45.0 50.0

• The PE industry raised US$44.1bn allocated for China investment, a new record

• 60% of the funds raised were Renminbi

PE/VC fund raising for Chinese investmentfrom 2008 to 2011US$ billion

5 812.7

19.3 26.6 18.0 6.4

11.1

17.6

5.0 10.0 15.0 20.0 25.0 30.0 35.0

denominated, continuing the growth trend of the past two years

• Exits held up relatively well despite difficult market conditions:

26 250

5.8 -

2008 2009 2010 2011(E)

Foreign currency fund Rmb fund185 PE/VC backed IPOs, compared to 220 in 2010

Most of the decline was due to fewer listings in the US hose IPO indo as effecti el

PE/VC backed IPO’s and exits by type from 2008 to 2011No.

73

220 185

16

16

35

50

100

150

200 the US whose IPO window was effectively closed since August 2011

Increasing importance of trade and secondary sales, with 35 exits by M&A an increase of 35%

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36 73

-2008 2009 2010 2011(E)

IPO Trade sale/Secondary sale 11Source: ChinaVenture

Domestic strategic M&A powered ahead by 11% with Domestic strategic M&A powered ahead by 11% with 3,262 deals, but foreign strategics pulled in their horns, falling by 11% to 482 transactions due to fewer deals done in the second half of 2011

120.0 2,500

in the second half of 2011• Strategic (corporate) transaction levels grew by 7%

to 3,744 compared to 2010, surpassing the previous record set in 2008

Strategic buyers deal volume and value,2008 to 2011

US$ billionNo.

80.0

100.0

1 500

2,000

• Domestic strategic M&A still dominates, accounting for 87% of the total strategic deal volume, with 3,262 transactions, up 11% over last year at record levels

40.0

60.0

1,000

1,500 y

• However, after a rebound in 2010, the number of transactions announced by foreign corporatesdropped by 11% in 2011 as overseas buyers responded to uncertain economic conditions in

(1)

-

20.0

-

500

1H08 2H08 1H09 2H09 1H10 2H10 1H11 2H11

Announced Volume Domestic Announced Volume Inbound

responded to uncertain economic conditions in their home markets; several of the larger foreign deals announced were in the consumer sector as overseas companies sought access to China’s domestic consumption

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Announced Volume Domestic Announced Volume Inbound

Disclosed Deal value Domestic Disclosed Deal value Inbound

Disclosed Deal value Total

p

Source: ThomsonReuters, ChinaVenture and PwC analysis

12(1) Including 1 banking deal and 1 retail deal for US$6.7bn

Strategic buyer deals continue to be spread widely Strategic buyer deals continue to be spread widely among sectors, with some strong activity in real estate in response to financing difficulties in the sector

21.6

21 5

20.5 Real Estate668

575

614 Raw materials

Strategic buyer Deals – Top 10 sectors by number of deals, 2010vs. 2011

Strategic buyer Deals – Top 10 sectors by deal value (US$ billion), 2010 vs. 2011

21.5

17.6

15.7

28.2

18.1

20.8

Raw materials

Industrials

Financial Services

575

500

395

475

446

320

Industrials

Consumer related

High Technology

(1)

(2)

11.9

10.8

9 3

4.9

10.5

High Technology

Consumer related

384

272

252

369

248

Real Estate

Energy and Power

Financial Services 9.3

7.6

4.7

10.5

4.6

4.3

Energy and Power

Media and Entertainment

Retail

190

179

137

179

124

Financial Services

Healthcare

Media and Entertainment

2011 2010

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4.6 2.8

Healthcare

2011 2010151 123

Retail2011 2010

13

Note: Raw Materials include mining, metals and chemicals. Source: ThomsonReuters, ChinaVenture and PwC analysis

(1) Including 4 domestic materials deals for US$7.4bn(2) Including 2 domestic banking deals for US$10.1bn

Outlook: Growth in China related M&A is anticipated to Outlook: Growth in China related M&A is anticipated to continue (1/3)

OverallOverall

• Predictions are difficult given turmoil in global markets, however continuing growth in China related M&A is still expected in 2012 overall

Outbound

• Outbound activity will continue its double-digit growth, driven by:

Increasing maturity and experience of Chinese buyers

Buying opportunities resulting from global economic turbulence, especially in Europe

Continuing strategic push for resources, energy, but also industrial and consumer processes and brands to bring back to the China market

Chinese companies looking to expand overseas for their own growth strategies

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Outlook: Growth in China related M&A is anticipated to

Private Equity

Outlook: Growth in China related M&A is anticipated to continue (2/3)

• An ever maturing PE industry has emerged as a key provider of capital to China's private sector:

Although many PEs are treading carefully, this demand for capital will g y g y, pcontinue to drive investment activity and we cautiously predict single digit growth for larger sized PE deals (defined as greater than US$10mn) despite the record levels achieved in 2011

However, we also expect to see some consolidation, with some weaker or less established PEs withdrawing from the market, and fundraising will be more challenging

E it b IPO ill e ai the efe ed o te b t t b le t ca ital a kets co ld Exit by IPO will remain the preferred route, but turbulent capital markets could result in a small decline in PE backed IPOs; PEs will increasingly look to trade sales or secondaries for an exit and we think that activity in this area could increase in double digits despite a generally unfavorable exit environment

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Outlook: Growth in China related M&A is anticipated to

Strategic

Outlook: Growth in China related M&A is anticipated to continue (3/3)

• Domestic M&A activity will continue to grow at a steady pace as China's industries and corporates consolidate and mature

• Some foreign buyers may wait until disruptions in their home markets subside, but g y y pothers may see an opportunity to deploy cash piles or to build further market share on top of existing China operations and we do not expect overall activity to decline sharply

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Key messagesKey messages

• Overall China M&A activity in 2011 was up 5% compared to the previous year to 5 364 transactions the highest annual total everprevious year, to 5,364 transactions – the highest annual total ever

• China Outbound continued its inexorable rise climbing to a new record of 207 deals (up by 10%) worth US$42.9bn (up by 12%)

d f i i i h l i d d l• 2011 was a record year for Private Equity, with 437 larger sized deals (defined as greater than US$10mn) up by 18%, valued at US$31.2bn up by33%）

D ti t t i M&A d h d b % ith 6 d l• Domestic strategic M&A powered ahead by 11% with 3,262 deals

• But foreign strategic buyers pulled in their horns, falling by 11% to 482 transactions due to fewer deals done in the second half of 2011

• We expect these trends to continue into 2012, despite challenging global economic conditions

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Data compilation methodologyp gy

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Key messages- disclaimer

Statistics contained in this presentation and the press release may vary from those contained in previous press releases There are three reasons for this: ThomsonReuters and ChinaVenture historical data is press releases. There are three reasons for this: ThomsonReuters and ChinaVenture historical data is constantly updated as deals are confirmed or disclosed; PricewaterhouseCoopers has excluded certain transactions which are more in the nature of internal reorganisations than transfers of control; and PricewaterhouseCoopers has used different data vendors in the past.

Included Deals Excluded Deals• Acquisitions of private/public companies resulting in change of

control• Investments in private/public companies (involving at least 5%

ownership)• Mergers

• Property/real estate for individual properties

• Failed transactions

• Options granted to acquire an additional stake when not 100% of the shares has been acquired

• Any purchase of brand rights

Included Deals Excluded Deals

• Buyouts/buyins (LBOs, MBOs, MBIs)• Privatisations• Tender offers• Spinoffs• Splitoff of a wholly-owned subsidiary when 100%

sold via IPO

• Land acquisitions

• Equity placements in funds

• Stake purchases by mutual funds

• Open market share buyback/retirement of stock unless part of a privatisation

• Balance sheet restructuring or internal restructuring• Divestment of company, division or trading assets resulting in

change of control at parent level• Reverse takeovers• Re-capitalisation• Joint Venture buyouts• Joint Ventures

• Balance sheet restructuring or internal restructuring

• Investments in greenfield operations

• Going private transactions

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• Joint Ventures• Receivership or bankruptcy sales/auctions• Tracking stock

© 2012 PricewaterhouseCoopers Limited. All rights reserved. “PwC” refers to PricewaterhouseCoopers Limited or, as the context requires, the PwC global network or other member firms of the network, each of which is a separate legal entity.