China tech firms ramp up M&A deals with the blessing of Beijing
At the top of the pile are Alibaba Group Holding and Tencent Holdings, two huge players that used to compete for acquisitions in everything from ride hailing and video streaming to online finance, until their wings were clipped by Chinese authorities concerned about their wide and powerful reach.
Nowadays, with China's economy struggling to pick up much growth momentum and tensions with the US and others rumbling on, the government's stance has shifted, especially with regard to key areas such as artificial intelligence and tech more broadly, where it's trying to stride ahead of rivals.
'We're seeing more normalisation when it comes to regulation of tech in China, which gives confidence to both companies and investors to start looking at deals again,' said Allan Chu, UBS Group's co-head of technology, media and telecommunications investment banking in the Asia-Pacific region. 'China wants to create national champions in areas such as AI and robotics, so we're poised to see more deals in those areas.'
Time for deals
Tencent's music platform agreed to buy podcasting startup Ximalaya this month, a step forward in its bid to be China's Spotify. That followed a Tencent subsidiary snapping up a nearly 10 per cent stake in SM Entertainment, a rare Chinese investment into a South Korean company in recent years.
In late 2024, Tencent acquired a majority stake in Guangzhou-based Kuro Games, a Guangzhou-based developer best known for its free-to-play gacha title Wuthering Waves. Bloomberg News has reported it is also studying a potential acquisition of Nexon.
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In April, Ant Group – founded by Alibaba pioneer Jack Ma, who disappeared from view in 2020 after criticising regulators – became controlling shareholder of Bright Smart Securities, which promptly rallied nearly 100 per cent the next day.
'Chinese technology companies have been very actively looking at acquisition opportunities both domestically and abroad, as they seek new growth areas and new markets,' said Ho-Yin Lee, head of Citigroup's APAC TMT investment banking group.
Dealmakers are also busy with disposals, joint ventures and other investments.
Alibaba, which has pledged to invest more than 380 billion yuan (S$68 billion) on AI infrastructure such as data centres over the next three years, has been very active, including selling its majority stake in hypermarket chain Sun Art Retail Group and department store business Intime Retail Group It also formed a US$4 billion JV with E-Mart's e-commerce platform in South Korea.
The uptick has come with the blessing of Beijing, eager to reduce any reliance on US technology. President Xi Jinping has met with prominent entrepreneurs to stress his support for them and the private sector. In September, a fresh batch of policies was introduced, emphasising themes such as business upgrades and innovation, and allowing listed companies to conduct more cross-sector deals.
With assets increasingly up for grabs, Chinese tech firms often tend to prefer to participate in a consortium instead of being the lead buyer, according to Ellis Chu, head of Asia M&A at Jefferies Financial Group.
New force awakens
Not long ago, China was warning about 'irregular expansion of capital' and monopolies. Amid the fallout, Tencent scrapped a plan in 2022 to acquire handset gaming brand Black Shark. Among other deals to collapse was a planned merger between DouYu International Holdings with Huya, which was rejected by regulators in 2021 on the grounds it would strengthen the game streaming dominance of Tencent, a shareholder in both companies.
Since then, AI has emerged as a major force, boosted by the success of Hangzhou-based DeepSeek, which sparked a rally in Chinese tech stocks this year. A group of startups known as AI Dragons or Tigers has bolstered China's AI credentials and attracted investment from both Alibaba and Tencent. Some are also considering moves such as initial public offerings.
'Market sentiment has changed in a positive way after a surge in AI interest earlier this year,' Chu at UBS said. 'Investor enthusiasm for China tech has come back, and that's led to more capital markets deals such as A+H listings, follow-on offerings and convertible bonds as companies seek to beef up their balance sheets. This strong appetite is poised to continue.'
Other deals include TikTok's owner ByteDance acquiring Shenzhen-based earphone maker Oladance, bringing on board a team of seasoned former Bose engineers. ByteDance has also delved into areas like robotics and edtech gadgets through in-house development or investments.
'We're likely to see more in-market consolidation in China,' Chu said. 'After years of being a growth market, now China is more mature for tech companies and, to a certain extent, similar to operations in the West.' BLOOMBERG
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