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Findings from the Money Tree Report published by PwC today, indicate that following implementation of a range of support policies to cope with the COVID-19 pandemic has gradually come

under control in China.  Concurrently, the macro economy has also seen clear signs of recovery.  As capital market activities continued on an upward trajectory, Private Equity and Venture Capital (PE/VC) investments in China’s Technology, Media and Telecommunications (TMT) industry rebounded sharply in the second half of 2020,  with total value reaching the highest level since the second half of 2018.

Altogether, the TMT industry recorded 2,063 deals in the second half of 2020, a 74% increase from the first half year. Investment value in the TMT industry was US$34.685 billion, a significant increase of 148% from the prior period, according to data from investment deals that disclosed their financial terms. Additionally, the number of large deals had risen significantly, with 55 deals sized over US$100 million, a 120% increase from the previous period.

Jianbin Gao, PwC Mainland China TMT Industry Leader noted: “Driven by the general market environment and the state’s strong support for the TMT industry, particularly technology innovation enterprises, investments in the TMT industry continued to rise acutely. Additional growth factors included ongoing development of the registration-based system of the Science and Technology Innovation (STAR) board market and the Growth Enterprise board market.  Momentum in investment activities from overseas capital markets also buoyed the TMT industry in China.  Consequently, strong pace of growth was observed in both total investment value and volume, exceeding the respective figures from the first half of the year. Looking ahead, the state’s support policies for the TMT industry and the ongoing trend of a robust capital market will continue to act as a driving force for investment activities in the TMT PE/VC capital markets.”

Among the four sub-sectors of the TMT industry in the second half of 2020, the Technology industry retained the top spot for investment, as it continued to see an increase in volume and value. In total, there were 1,390 investment deals in the Technology Industry, an 83% increase from the first half of the year. Combined investment value reached US$21.823 billion, marking a substantial 176% increase from the previous period.

Within the industry, the semiconductor sector continued to attract an influx of investments. The Internet and Mobile Internet industry also showed a significant increase in investment value and volume. The 549 deals recorded marked a 44% increase from the first half of the year. Total investment value reached US$11.556 billion, a 141% increase over the first half of 2020, reaching the highest point in the past two years. The Telecommunications industry showed a divergence between investment volume and value, recording a total of 35 deals, an 84% increase from the prior period. The total investment value was US$422 million, however, which reflected a 61% decrease from the first half of the year. The Entertainment and Media industry rallied in the second half of the year, thanks to the successful control of the pandemic, but has not yet fully recovered. A total of 89 deals were recorded, with an investment value of US$884 million, which correspond to an increase of 218% in volume and 416% in value respectively from the first half of 2020.

In terms of investment stages, volume and value of investments in start-up stage companies and mature stage companies recorded a year-on-year increase. However, due to a lower appetite for risk from investors and following requirements for the rate of return on capital, capital investments continued to largely target expansion stage companies.

In the second half of 2020, investment volume in expansion stage companies recovered from record lows to hit a historical high of 562 deals in the third quarter, a 112% increase from the previous quarter. The investment value of the third quarter saw an increase of 179% from the previous quarter, and remained on the rise in the fourth quarter, with an increase of 51% from the previous fourth quarter. The average investment value per deal in expansion stage companies was US$20.29 million. Notably, investment value in the Technology industry ranked highest among the sub-sectors, accounting for 56% of investment value in expansion stage companies. Photo by Wikimedia commons.

Wilson Chow, PwC Global TMT Industry Leader said: “As a result of the state’s strong support for technology innovation, semiconductors, 5G construction, big data centres, artificial intelligence, IoT centers, companies both upstream and downstream of the industry chains have become investment hot spots. In addition, the pandemic presented investment opportunities in specific industries such as Internet education, e-commerce, and online services.”

The second half of 2020 saw a significant recovery in the overall number of exits, with a total of 324, reflecting growth of 203% from the first half of the year. By type of exits, equity transfers – the first choice for many investments - remained the top exit option, accounting for 46%.  The second half of the year remained active - investments in the capital market drove the number of IPOs to soar 53% from the previous period. With the state’s ongoing reform of the registration-based system in the capital market, IPOs in the domestic capital market are on course to become even more favoured by Chinese enterprises. At the same time, Hong Kong will remain the most popular destination for China concept stocks seeking secondary listings.

Wilson Chow, highlighted that: “As the COVID-19 pandemic was gradually brought under control in China, the TMT industry saw an overall recovery. Thanks to the policies issued by the Ministry of Industry and Information Technology to promote the high-quality development of the integrated circuit industry and software industry, industries such as semiconductors, IT services, electronics and optoelectronic devices will continue to attract investments. Yet investing obstacles to offline activities resulting from COVID-19, has also identified new investment opportunities in fields such as telecommuting, online education, telemedicine, webcasting, and online shopping. We anticipate that with the ongoing promotion of development, supported by the state’s policies, investment activities in the private equity market will continue to stay active and steady in the second half of the year.”