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Chinese corporates question value of advice

The culture among Chinese companies of preparing and executing their own acquisitions isn’t good news for investment banks keen to charge for services. Will it ever change?

Advice has always been a tough sell in China. The idea of paying for something as intangible as a conversation has never quite been embraced with the enthusiasm seen in other markets, often to the frustration of M&A bankers. 

Keith Pogson, global assurance leader and senior partner, financial services, Asia Pacific at EY

As returns on investment banking in China have been crushed, the investment banks have been downsizing their teams

 Keith Pogson,

But while Chinese companies may once have lacked the deal-making experience to do anything except cough up the fees, particularly for outbound transactions, bolder firms are increasingly going it alone.

The ability of certain Chinese companies to devise their own search style and conduct the initial due diligence on a target may well be the reason that revenues are dropping while the market seems to be strengthening. Work that in the past would need external advisers for some firms can now be done just as effectively with an in-house deal team, particularly in the technology sector.

And according to market sources, the share of domestic and outbound fees captured by foreign banks could be anywhere between 50% and 100% more if in-house deals were fee-paying instead – a mouth-watering prospect for those involved in the market.

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