Industrial, financial and consumer sectors have dominated China's mid-market merger and acquisition activities and more outbound M&As are expected, an industry report said.

The industrial sector led the way in mid-market M&A activity over the period of 2003 to the second half of this year.

The activity accounted for 76 deals worth US$8 billion - 20 percent of overall deal value and 22 percent of volume, Deloitte said in a report yesterday.

Financial services and consumer sectors followed. Financial services comprised 54 deals worth US$6.5 billion and deals at the consumer sector numbered 53 worth US$6.2 billion, the report said.

Mid-market M&A deals refer to those involving between US$50 million and US$250 million, including minority stakes.

The financial sector dominated mid-market M&A activities in China in the first half of the fiscal year. The trend is likely to continue as the country shifts from a world manufacturing hub to a maturing economy moving up to higher value chains.

Financial sector transactions will increasingly feature higher valuations against the manufacturing sector's large number of small deals. The sector will peak and eventually play a minor role in the mid market.

Private equities and venture capital are helping to drive more M&A activities in China and more outbound investments are expected, said chief executive officer of Deloitte Asia Pacific Chaly Mah yesterday at the CPA Australia Shanghai Forum.

Exchange rates are a vital component of M&A deal flow, especially for cross-boarder deals.

"It is likely that Chinese firms looking to buy outwards would be enticed by the yuan's increasing bite," Deloitte said in the report.

China dropped its decade-long peg to the US dollar in July 2005. The yuan has appreciated about 10 percent since than.

The yuan is estimated to strengthen to 6.49 against the greenback by 2011. The Chinese currency is also expected to gain steam against the Euro to 8.99 by 2011.

China's mounting foreign exchange reserve, which topped US$1.43 trillion, also acts as a driver for more overseas M&A.

Mergermarket conducted the research on behalf of Deloitte to identify important trends in mid market M&As in the developing economies of Asia Pacific including China, Southeast Asia and India.

(Shanghai Daily November 9, 2007)