China-Europe cross-border transactions could see a dynamic rebound, especially in the mid-cap dealmaking landscape, on the back of Donald Trump’s return to office coupled with China’s incentive package and relaxation policies, multiple panelists said at IPEM China 2024, held in Wuxi, China on 6-8 November, 2024.

“This is the moment to foster the relationship between China and Europe,” said Nani Falco Becalli, founder & CEO at Falco Global Partners, a Switzerland-based PE firm.

“Globally the sentiment is that if the US are not our allies forever, we would rather look at other places, such as China, which is the [world’s] second largest economy with a big market,” said Jérôme Dupas, managing director of corporate finance at Groupe BPCE, a France-based banking group.

The upcoming Trump administration’s protectionist trade posture and transactional approach to the rest of the world could weaken the US long-term prominent role on the global stage, which will turn out to be a good opportunity for China in terms of mutual investment with Europe, said Yang Yang, managing director at Firstlight Capital, a China-based private equity firm.

It’s potentially a great opportunity for the EU bloc to take a new role to do business, given many European countries, such as France, take a neutral stance and make friends with China, said Alban Neveux, CEO at Advention, a France-based strategy advisor. Approximately 95% of M&A transactions are mid-cap deals, which are welcomed in both China and Europe, as they are subject to few regulatory restrictions, he noted.

China dealmakers remain hopeful that with the upcoming Trump administration, Europe will likely start to open up on regulatory approvals and restrictions on China, according to Yang.

Starting from around 2021, the European Union (EU) started to introduce some regulatory processes similar to the Committee on Foreign Investment in the United States (CFIUS) reviews, with the screening bar growing gradually, Yang said. It is becoming difficult for Chinese firms to invest in Europe in terms of industries and deal sizes, he added. “We could do lots of Europe deals before 2020, as the US market was largely closed for Chinese investors.”

European companies are also looking at Chinese assets, due to the affordable valuation, and the huge growth market, Neveux said.

As the public market has always been the leading indicator of global sentiment, global investors have already been buying Hong Kong shares and A shares (on Chinese mainland bourses) recently, said William Ma, CEO at GROW Investment Group, a China-based asset management company.

Global expansion key to PEs in China and Europe

Speaking of sectors, “The energy transition is key for Europe, and the solution is coming from China [..] If we don’t cooperate with China, we can’t be competitive,” said Nicolas Rochon, founder & CEO at RGreen Invest, a France-based investment management firm. The sectors that the European investors are trying to long in China are related to healthcare, such as pharmaceuticals, life science, and biotechnology, amid the aging population in China, said Ma.

At the same time, Chinese companies are going overseas to expand global supply chains in a bid to keep their global presence, as they are currently facing tremendous restrictions and sanctions in the global space, said Jess Zhou, Senior Director, Corporate Development and M&A at Boehringer Ingelheim.

“As a Chinese PE firm, we are also pushing our portfolio companies to buy small assets in Europe, like hundred-million-dollar deals,” Yang said.

PE firms in France have been increasingly pushing their local portfolio companies to go abroad for global acquisitions, given the French and other European markets are small and fragmented, different from China’s huge market, said Dupas.

Compared to Western countries, China doesn’t have as many multi-national corporations (MNCs) as Western countries. In other words, few Chinese brands have been seen in Europe or the US markets, unlike western brands in China, Yang explained.

When it comes to IPO, the companies with global businesses could generally trade at 20-30% higher than those only operating local businesses, which means the financial investors could exit the portfolio firms with higher valuation, Ma said.

New regulation provides pathway for foreign investors’ exits

For China, a consistent regulatory framework for doing business locally, and economic policies to support stable market growth are key to boosting European investors’ confidence and long-term exposure to this market, Yang and Ma said.

China has gradually relaxed the restrictions on foreign strategic investors to invest in Chinese A-share listed firms, either in terms of shareholding threshold or lock-up period, said Liang Dong, partner at Grandall Law Firm, a China-based legal advisor.

Echoing Dong, Yang highlighted one of the recent relaxation measures, which was released by China’s Ministry of Commerce on 1 November, as a positive signal, saying that PE firms are allowed to sell offshore assets to Chinese listed companies and then get A-shares like international strategic investors with a lock-up period of only 12 months.

That could be an alternative exit from the overseas quality assets which may hardly get any IPO or trade sale opportunity at the moment, Yang said.

[Editor’s note: The eleventh paragraph has been amended post-publication to clarify Jess Zhou’s designation as Senior Director, Corporate Development and M&A, at Boehringer Ingelheim.]