Chinese, US deals will grow this year: study says

As Chinese and US investors continue to make cross-border deals, transactions in entertainment, advertising and digital media sectors will see a potential rise in the next 12 months and beyond, says a new survey conducted among investors from both sides.

The survey was of 100 corporate executives, investment bankers and private equity practitioners based in both countries with operations or experience with mergers and acquisitions transactions in entertainment, advertising and digital media industries. It was commissioned by the Los Angeles-based law firm Manatt, Phelps & Phillips LLP.

"There is going to be substantial growth and we've seen a lot of activities flowing along that line, with most activities within China - the expansion of movie theaters and film groups and the extension of television production and digital media," said Lindsay Conner, a partner and co-chair of entertainment and media practice at Manatt.

The US market attracts the growing number of Chinese investors in media and entertainment industries because of its advanced technology and storytelling techniques.

"We are also seeing much greater interest from China coming in the US where the survey shows that the driver or motivation - first and foremost - is American technology and know-how," said Conner.

"Many of the Chinese firms we work with feel that they could benefit from American storytelling techniques and American film technology so they could then use that to express Chinese themes and Chinese culture in a way that will not only be exciting for Chinese audiences but elsewhere around the world," he said.

Chinese investment in the US reached some $6.5 billion last year, according to New York-based Rhodium Group that tracks overseas Chinese investment. The total investment volume reached $25.4 billion between 2000 and (first quarter of) 2013, with entertainment and real estate together reaching $4 billion.

As US based companies and investors target entertainment, advertising and digital media opportunities in China, more than half of US-based respondents say they will most likely consider companies and assets valued at $250 million or less. US bidders, according to the survey, will not be acquiring controlling interests; however, due to Chinese law and regulatory obstacles, strategic partnerships and joint ventures are the structures most likely to be approved.

"The motivation of the American investors is to get access to the Chinese market and to gain a foothold in China to present their work to Chinese audiences," said Conner, adding that the number one motivation of American investors going to China in entertainment and media industries is because China is the world's largest "under-tapped market" in those fields.

China's media and entertainment market is estimated to have an annual growth rate of 17 percent between 2010 and 2015 - significantly outpacing economic growth - according to an Ernst & Young report. China has the second-largest film market in the world after the US and is on its way to surpassing the US box office by 2020.

"Based on the pace of the theater building in China (currently after Japan) that it will become the No1 film market in the world within the next ten years," said Conner.

The Manatt survey's results reflected some recent deals - including some mega ones - done by investors on both sides of the Pacific in entertainment industry.

Last September, Dalian Wanda Group officially acquired AMC Entertainment, the second-largest US theater chain, for $2.6 billion, becoming the world's largest cinema owner.

"It was a huge deal and very important by any standard," said Conner.

Last October, Fox International Productions, a division of 20th Century Fox Film Corporation, and China's Bona Film Group formed multi-picture deal where the two companies will produce Chinese language films to distribute throughout China.

Conner said these developments were a result of the announcement by Chinese President Xi Jinping - who then served as the vice-president - when he visited Los Angeles last February during his state visit that 34 foreign films from 20 will be shown every year in China.

"I think the Chinese leadership wanted to send a message of a greater openness and willingness to have an exchange of the culture industries across the Pacific - it was a great way to make that announcement," said Conner.

The survey also highlighted how investors from both sides watch for the political sentiment between the two largest economies to modify their investment decisions. Majorities from both sides expect the uncertain US-China political relationship to significantly impact deal making and investment activity.

"It is not surprising that people from both sides would focus closely on the political relationship," said Conner.

"If the relationship between the governments is good or improving, then investors feel there will be a greater willingness to allow cross-border investment," he added.