The last few decades have seen a substantial increase in the number of
cross-border mergers and acquisitions. Chinese firms have been heavily involved
in this activity, with the UK proving to be one of the most popular targets for
their investment, thanks partly to its reputation as an open and flexible
economy in which to do business. There were 91 Chinese cross-border M&A
investments in the UK from January 2012 to June 2016, demonstrating the upward
trend for the last few years.
There can be numerous motives behind the instigation of cross-border M&A
activity, and equally wide-ranging thought towards their efficacy or otherwise.
For example, one of the prevalent views about M&A is that most deals fail
in the primary aim of increasing value to shareholders. In light of the great
increase in investment in the UK by Chinese companies, the research paper
"An Analysis of Short-Term Performance of UK Cross-Border
Mergers and Acquisitions by Chinese Listed Companies" by the
Centre (MARC) at Cass Business School investigates what effect
these deals have had on shareholder value.
The paper poses the following three questions:
1) What is the short-run stock performance of Chinese-listed companies
acquiring assets in the UK;
2) To what extent have M&A announcements resulted in value creation for the
3) Which factors affect the short-run value creation process.
It finds that Chinese acquiring firms made significant positive abnormal
returns (these being returns generated over a period of time that is different
from the expected rate of return) on the day following the announcement of a
deal in the UK. It also found that these positive returns dissipated as the
event day passed. Extending the analysis to specific industries, the paper
finds that the majority of positive abnormal returns came from sectors such as
real estate, oil & gas, consumer, industrial, technology and utilities. In
contrast, the financial sector generated negative abnormal returns for the
The size of the deal was also found to be significant, with smaller deals
proving more successful in the short-run period. Finally, the formation of the
acquisition also had bearing on the success of the deal - UK private target
firms earning higher abnormal returns than public targets.
This paper presents a new focus of study of cross-border merger activity.
Where there already exists a large body of literature reviewing cross-border
activity between developed countries, there is sparse focus on developing
countries. This therefore represents the first time a detailed study of inbound
Chinese investment has been carried out.
Solid, reliable data regarding M&A deals related to China is notoriously
difficult to obtain and confirm. Therefore, this research was made possible by
utilising the proprietary database of Chinese deals compiled by Grisons Peak
LLP where the final sample was 44 UK acquisitions by Chinese
publicly-listed companies where deal sizes were greater than $5 million and the
deals resulted in control (over 50% ownership) of the target companies.