Shopping While Quarantined

Tech acquirers in China appear to have been quarantined, too. As the coronavirus outbreak has kept China mostly locked inside its borders, companies based in the world's second-largest economy have broken off virtually all M&A negotiations with the outside world. So far in this virus-infected year of 2020, China-based buyers have reached outside their home country for just one single tech acquisition, according to 451 Research's M&A KnowledgeBase.

The deadly coronavirus outbreak, which first appeared in China in late December, and the country's subsequent isolation have effectively reversed China's early, tentative steps into the broader global tech M&A market. Buyers there had regularly (if not voluminously) used acquisitions as a means of geographic expansion or as a way to profitably arbitrage their low cost of labor compared with other countries.

Yet for 2020, the single non-domestic tech purchase by a China-based acquirer in the first 10 weeks of the year puts full-year 2020 on pace for the fewest foreign tech deals in more than a decade and a half. Further, our data shows that 2020 is tracking to just one-tenth the number of foreign tech transactions in 2016, which stands as the peak year for Chinese businesses shopping abroad.

Several of the prints listed in the M&A KnowledgeBase from 2016's M&A heyday show just how aggressive some of the Chinese buyers had become. Prints from 2016 included deals such as Didi Chuxing's $6bn reach for Uber's operations in China as well as multibillion-dollar buyouts by Chinese financial operators of Ingram Micro and Lexmark. That year proved to be the high-water mark, with the waters receding every single year since then.

The notable drop-off following 2016's record year was largely due to Beijing's abrupt introduction of restrictions on foreign investment. The currency controls were followed up by a hugely damaging trade war between the US and China, which had only partially been resolved before the outbreak of the coronavirus. Now, with China as Ground Zero for the epidemic, acquirers there face yet another barrier to shopping outside their home market.