October 26, 2010

SmithStreet Insights

China M&A Briefing – Q3 2010

Steven Lee, CFA, Principal, Investment Research and Analytics
Christopher Leung and Feng Xu contributed to this report

Contact
Christopher Leung
English Media Coordinator
christopher.leung@smithstreetsolutions.com
+86 (21) 6565-6533 office
Outbound M&A
Based on SmithStreetSolutions’ M&A data for the months from July to
September of 2010, there were a total of 33 announced outbound deals,
down 37% compared to the same period last year. Only 29 deals (88%)
disclosed their M&A value, which amounted to USD 8.3 billion, a 58%
decrease from the third quarter of 2009. Although not included in our data,
it is interesting to note there was a possible USD 10.2 billion bid by
CNOOC for a controlling interest in Pan American Energy in July.
Outbound M&A activity picked up as deal volume increased 27% relative to
a slow second quarter. However, the average size of deals decreased as
most deal values were under USD 100 million in August.

A significant amount of outbound deal flow this period was attributed to the
basic materials sector. The consumer discretionary sector continued to
dominate the outbound M&A market in terms of deal size, totalling to USD
3.2 billion. Most noteworthy was Bright Food’s pre-empted auction for
Britain's United Biscuits, a deal likely to be made for as much as USD 3.2
billion.

The majority of outbound deals continued to situate in Asia/Pacific and

North America, with 15 (46% of total) and 9 (27% of total) acquisitions
respectively. However, Europe experienced the highest dollar transfer due
to the Bright Food auction mentioned above.

2010 Monthly Outbound M&A

$Bn USD
8 14
7.0
7 12
6 5.5
10
4.9
5
4.1 3.9 8
4
2.7 6
3
4
2 1.2
0.8 2
1 0.3
0 0
Jan Feb Mar Apr May Jun Jul Aug Sep
Value* Volume
*Based on announced deal size

©2010 SmithStreetSolutions, Ltd. Page 1

 SmithStreet Insights

Q3 2010 Outbound M&A Activity

Outbound Volume by Industry Outbound Value by Industry

Healthcare Financial 3%
Energy 3%
3%
Basic
Real Estate Healthcare Materials
6% 0% Financial 9% Industrials
17% 8%
Basic
Other Materials
12% 31%
Energy
18%
TMT Consumer
12% Discretionary
Industrials Real Estate 39%
Consumer 18% 1%
Discretionary Other
12% 2%
TMT
6%

Outbound Volume by Geography Outbound Value by Geography

Africa
Africa
Europe 6% 18%
9% Asia/Pacific
30%
South
America
Asia/Pacific
12%
46%

Europe North
38% America
North
America 13%
27%
South
America
1%

©2010 SmithStreetSolutions, Ltd. Page 2

 SmithStreet Insights

Inbound M&A
According to SmithStreetSolutions’ M&A data, there were a total of 69
announced inbound deals, a 68% increase of from the same period last
year. However, only 47 deals or 68% of all inbound transactions disclosed
their M&A value, which totaled to USD 8.6 billion, or a 258% increase from
the third quarter of 2009.

Overall transaction volume and average deal size increased from last year
indicating continued confidence in the China market. Inbound M&A activity
also followed an upward trend in volume and value each quarter.

Volume of inbound M&A was evenly distributed amongst various industries.

Our analysis shows that inbound dollars concentrated in the real estate
and basic materials sector. Most noteworthy was the USD 1.4 billion
acquisition of Hao Chang Limited by Hong Kong’s HyComm Wireless Ltd.
Inbound activity is expected to increase as credit markets continue to
exhibit willingness to lend at attractive rates.

Asia/pacific firms were the primary buyers this quarter with a total of 35
transactions and USD 6.4 billion in expenditure. Europe has also picked up
since the first half of 2010.

2010 Monthly Inbound M&A

$Bn USD
4 30
3.4
25
3 2.6 2.8
2.4 2.4 20

2 1.7 1.7 15

10
0.9
1
5
0.2
0 0
Jan Feb Mar Apr May Jun Jul Aug Sep
Value* Volume
*Based on announced deal size

©2010 SmithStreetSolutions, Ltd. Page 3

 SmithStreet Insights

Q3 2010 Inbound M&A Activity

Inbound Volume by Industry Inbound Value by Industry

Other 2% Utilities
Utilities 1%
Financial 3% 0%
Financial 6%
Other
Energy 6% 6% Basic
Materials Healthcare
18% 1%
Energy 13%
Basic
Industrials
Materials
3%
29%
Healthcare Consumer
10% TMT 7%
Discretionary
17% Consumer
Industrials
Discretionary
10% Real Estate
Real Estate 14%
28%
TMT 12% 14%

Inbound Volume by Geography Inbound Value by Geography

Africa Africa
1% 0%

Europe
8%
Europe
20% North
America
17%
Asia/Pacific
51%
North Asia/Pacific
America 28% 75%

©2010 SmithStreetSolutions, Ltd. Page 4

 About the Author
Steven Lee, CFA, is the Principal, Investment Research
and Analytics at SmithStreetSolutions and is responsible
for the strategy and operations of SmithStreetSolutions’
financial advisory business. Steven has over 14 years of
experience in investment analysis, structured products, and
portfolio management. Steven’s insights into M&A in China
have been featured by NHK News and in the China Daily
US edition. He has also been a speaker at a China Institute.
Corporate Lecture: The Effects of the US and Chinese Stimulus
Packages, and is the author of the white paper on the same topic. Prior to
joining SmithStreet, Steven served as Managing Director for an
opportunistic, multi-strategy hedge fund in New York focusing primarily
on private investments. Previously, he was the Head of Structured
Products at Refco Alternative Investments, where he was responsible for
the creation, distribution and management of Principal Protected Notes
and Total Return Swap structures. Steven has also formerly worked at
Asset Alliance Corporation, Bear Stearns investment banking, and James
D. Wolfensohn, Inc. Steven received a B.A. in Economics, with
Distinction, from Yale University and is a CFA Charterholder.

About SmithStreetSolutions
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firm with offices in Shanghai and New York. By bringing global best
practices to China and unlocking China’s value, it provides clients with
the knowledge and insights they need to make sound business decisions.
Since its founding in 2007, it has provided its clients with strategic
consulting, market research, due diligence, and financial advisory
solutions across a wide range of industries.

About SmithStreet Advisory

SmithStreet Advisory specializes in China related mergers & acquisitions.
Using a synergistic business model with SmithStreetSolutions,
SmithStreet Advisory is leveraged with valuable insight to search and
target with precision and speed. Its finance team combines Wall Street
experience, expertise in due diligence and financial modeling, and a deep
understanding of the China business environment to provide its clients
with the knowledge and guidance to succeed in their investment strategy.

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