A vexed question

China's foreign M&A spree has its own unique logic

For outsiders, the logic behind China's outbound M&A spree is hard to divine. Companies from the People's Republic have announced cross-border acquisitions worth $107 billion so far this year. Few bring any of the financial benefits typical of conventional mergers and acquisitions. Synergies are usually absent, and the buyers tend to leave incumbent management in place. Three factors are at play.

The first and probably most important driver is the desire to acquire foreign technology and management expertise. Chemchina's $43 billion offer for Swiss pesticide and seed giant Syngenta fits into this category. So, does appliance maker Midea's $5 billion bid for German robotics company Kuka.

Even a minority stake may bring seats on the board of a target company and access to information otherwise left behind closed doors. Deals that are in the national interest also benefit from cheap finance: China's state-owned banks will lend at interest rates of two per cent to fund acquisitions of technology the government wants, bankers say.

Then there are acquisitions that represent a search for value compared with inflated asset prices at home. Chinese equities still look expensive: shares on mainland exchanges trade at an average premium of 36 per cent to shares in the same companies listed in Hong Kong. Overseas purchases also provide a hedge against currency devaluation as well as diversification from China's slowing economy.

Throw cheap financing into the mix and insurer Anbang's overseas acquisition binge, which included a failed $14 billion bid for Starwood Hotels & Resorts Worldwide, begins to make a bit more sense. For private companies like HNA Group, which has spent heavily in aviation, hotels and electronics, overseas deals are a response to the difficulty of competing with state-owned groups at home.

Finally, there are trophy purchases. These lack financial logic but may be part of a broader political calculus. President Xi Jinping's love of soccer helps explain the recent rush by Chinese buyers to purchase European clubs. And when Xi visits New York, he can stay in the Anbang-owned Waldorf Astoria hotel. That it seems, is a privilege beyond price.