The raging need for Chinese oligarchs and corporations to park their cash offshore, and as far away as possible from the the mainland and the risk of sudden, sharp (10%-15%) devaluation, has resulted in not only an epic Vancouver housing bubble, or the predicted parabolic surge in bitcoin price (which has soared by 50% in just a few weeks), but an unprecedented M&A spree for US-based assets. We profiled as much in late March in a post titled "Eight Things The Chinese Are Scrambling To Buy In America."
And while overall M&A in the US is down substantially YTD, sliding 28% by volume (but only 4% in number of deals) mostly as a result of the volatile market in the early part of the year as well as the chilling effect of Congressional crackdown on tax-inversion deals (such as the pulled Pfizer-Allergan mega-merger), and the lack of any blockbuster mega-cap (>$25 billion) deals, China not only refuses to go away, but the level of Chinese cross-border M&A chasing after US targets is literally off the charts.
Here are the details from Goldman:
Cross-border, while down in aggregate, continues to gain share at 34% of total YTD volumes (a 6-year high). While the distribution of acquirers and targets remains relatively well diversified, one trend has been increased Chinese volumes. Notably, China has accounted for 26% of global cross-border activity YTD, which is nearly 3x higher than the next highest year (2013).
While the vast majority of US targets continue to be bought by US acquirers, there has been a trend towards international purchasers, particularly from China, in recent years (see Exhibit 5). At $28 bn YTD, US-inbound deal flow from Chinese acquirers is already a record level and nearly 2x last year’s volumes ($17 bn). On the flip side, there have been relatively few deals of US acquirers going after Chinese targets, which is a change vs. the last M&A cycle in 2004-2008. See Exhibit 6.
So is it time to panic yet? No, first China has to buy Rockefeller Center, because what is taking place now is nothing that didn't take place almost 30 years ago when Japan was likewise facing a comparable epic liquidity bubble and unleashed a massive wave of US-based acqusitions. Recall from 1989:
Japanese Buy New York Cachet With Deal for Rockefeller Center
The Rockefeller Group, the owner of Rockefeller Center, Radio City Music Hall and other mid-Manhattan office buildings, said yesterday that it had sold control of the company to the Mitsubishi Estate Company of Tokyo, one of the world's biggest real estate developers.The deal, which comes almost exactly 50 years after Rockefeller Center opened on Nov. 1, 1939, is only the latest instance of the Japanese buying a vital piece of the American landscape, from Hollywood to Wall Street. In September, the Sony Corporation bought Columbia Pictures for $3.4 billion.
And of course, "Japanese Buy Pebble Beach Golf Course"
The property includes four golf courses and the famous lone cypress tree, used as a Pebble Beach logo, which stands on a point of land along the scenic 17-Mile Drive around the peninsula. The deal also includes two resort hotels, the Lodge at Pebble Beach and The Inn at Spanish Bay. ''It's right up there in the deal-of-the-year category,'' said Jack Barthell, a partner at Kenneth Leventhal, the Los Angeles-based accounting firm that specializes in real estate.
As most know, the Japanese acquisition spree in 1990 ended with disaster, if only for the acquirors. This time will be absolutely the same, only this time it will be China that is bent over. And, more importantly, once the Japanese M&A wave ended, it has nearly 30 years of relentless contraction, deflation and demographic devastation.
If China is next - and there is no reason the believe it won't be now that even Goldman admits China's total debt is somewhere in the 350% ballpark - watch out as ultra long bond yields plummets right into subzero territory, as the world finally realizes that absent helicopter money and hyperinflation, only a deflationary black hole awaits.