The Big Four global accounting firms are going head-to-head with investment banks in China, snatching up a record number of outbound transactions from the country.
The companies — PwC, EY, Deloitte and KPMG — advised on $8.6bn worth of cross-border acquisitions by Chinese groups last year, up nearly fourfold from the $2.2bn the year before, according to data from Thomson Reuters.
The figure represents a small chunk of the total $220bn that Chinese companies spent on overseas transaction last year. But the increase in the size and number of deals that some of the accounting groups have been lead advisers on demonstrates the inroads they have made in investment banking.
“We are a boutique investment bank in the way we are working now,” said Gabriel Wong, head of China corporate finance at PwC.
The strategy for the accounting firms has been to wrap up a number of services into the advisory business, with an emphasis on tax restructuring, due diligence and human resources management — core practices for the firms that traditional investment banks have not focused on.
The rise of mid-tier Chinese companies seeking out their first overseas acquisitions gave a boost to EY’s business last year, said Erica Su, head of the company’s transaction advisory service for greater China.
“The buyers are more fragmented and looking for a one-stop shop with advisory and due diligence,” Ms Su said.
PwC took a big lead on its peers in China, advising on 10 transactions worth a total $7.3bn in 2016, up from $320m the year before.
PwC took the lead advising role on the Haier deal, one of the largest Chinese cross-border buyouts in 2016. Until recently, most of the Chinese transactions the Big Four had worked on had been relatively small, ranging between $200m and $600m.
Deloitte is advising on the £1.15bn sale of the City of London’s “Cheesegrater” to Chinese property developer CC Land, according to people familiar with the deal.
M&A advisory fees in Asia are generally low, and investment bankers have noted that Chinese groups often pay out about one-third the size of the fees they earn in the US.
Mr Wong at PwC said the fees his business had picked up from Chinese deals were comparable to those earned at investment banks, and that his team was not merely competing on price with investment banks.
For the Big Four’s global corporate advisory practices, the business in China has become increasingly important. Chinese M&A advisory constituted nearly one-fifth of the total business last year for the four companies, up from about 2 per cent in 2015.