ChinaVenture Report: Big Four Hold their Ground Against Chinese Entrants Amid China's Overseas IPO Boom

BEIJING, Nov. 2, 2010 /PRNewswire-Asia/ -- Amid ongoing rallies in major capital markets around the world and the continuing shift of investors' renewed focus on "China plays", the number of China's overseas IPOs have been increasing over time since the beginning of last year. According to the latest statistics from ChinaVenture, since 2009, China's overseas IPOs being advised on by foreign accounting firms, especially the Big Four accounting firms, have increased dramatically quarter by quarter, and have constituted the bulk of all the transactions. However, while these foreign accountants built up their market share, their Chinese peers, led by RSM China and Shinewing, exerted their utmost to play catch-up, and succeeded in jumping on the bandwagon of advising on overseas listings by first carving out a foothold on the HKEX and then making their forays into overseas IPO markets.

Immediately after the subprime credit crisis in 2007, there were just a few of China's IPOs spread sparsely on major overseas markets; however, since 2009, everything has changed. Although some small/mid-cap bourses abroad, such as SGX, have lost their appeal to Chinese debutants, the offerings on U.S. and H. K. equities markets have steadily increased over time, and by this October, the number of Chinese IPOs has already exceeded the total for the full year of 2009 (as shown in Figure 1). In face of the Chinese accounting firms' long-standing advantage in advising on IPOs on the A-share market, the "Big Four" tried to maintain their dominant position among Chinese firms via advising on overseas IPOs.

On the HKEx: Deloitte Gained Ground over KPMG

In 2008, Deloitte began to be more focused on engaging in HK IPOs, and has ever since grabbed market share from its rival KPMG. According to the latest statistics from CVSource -- ChinaVenture's online database system, by Oct. 20, 2010, Deloitte, Ernst & Young, KPMG and PricewaterhouseCoopers have engaged in 20, 15, seven and six Chinese offerings on the HKEx respectively (as shown in Table 1). KPMG has lost its leading advantage seen in 2008 to Deloitte.

In contrast to the good old times before 2008, when the HK IPO market was completely monopolized by the Big Four accounting firms, nowadays, there are many more players on the ground, resulting in intensified competition among foreign and Chinese rivals. For example, RSM China, Shinewing and Grant Thornton are among the most aggressive, and for the year to date, they have already succeeded in advising on five, three and two Chinese IPOs on the HKEx respectively as opposed to two, one and three deals for the full year of 2009. By now, the share of Big Four accounting firms on the HK IPO market has declined from 100% in 2008 to 80% (as shown in Figure 2).

On the U.S. Bourses: Is the Market Dominated by the Big Four or the Big Three?

In China's overseas IPO market in the U.S.A., mainly the NASDAQ and the NYSE, Deloitte, PricewaterhouseCoopers and Ernst & Young have enjoyed a dominant position, holding over 65% of the market share (together with KPMG), and their IPO transactions have multiplied over time. According to the latest statistics from CVSource, as of Oct. 20, 2010, the three firms have respectively advised on seven, five and four IPOs by Chinese debutants on the U.S.A. bourses, and six other accounting firms, including KPMG, Sherb, BDO CLXDH, B&P and JSW, have also engaged in one IPO transaction in U.S.A. each (as shown in Table 2). However, with the combined market share of the three accounting firms rising to over 70%, the landscape of China's US IPO market has evolved quietly, dominated by the "Big Three" (Deloitte, PricewaterhouseCoopers, and Ernst & Young) instead of the "Big Four " as early as in 2008 (as shown in Figure 3).

On the SGX: The Big Four Scaled Down Their Business in the Weakening Market

As the weakening SGX has lost its appeal to Chinese IPO debutants over the past few years, the Big Four have scaled down their business there. According to the latest statistics from CVSource, since 2008, Ernst & Young and KPMG have engaged in only one or two IPO transactions involving Chinese firms each year, Deloitte has done only one deal, and PricewaterhouseCoopers hasn't done a single one at all (as shown in Table 3). On this burse, the HK-based Grant Thornton retained a relatively big market share, and has advised eight, three and one Chinese upstarts on their IPOs here respectively since 2008 (as shown in Figure 4).

Table 1: China's HK IPOs During 2008-2010 Advised on by Different Accounting Firms (As of Oct. 20, 2010)

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Table 2: China's US IPOs During 2008-2010 Advised on by Different Accounting Firms (As of Oct. 20, 2010)

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Table 3: China's SGX IPOs During 2008-2010 Advised on by Different Accounting Firms (As of Oct. 20, 2010)

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Figure 1: China's Overseas IPOs During 2008-2010 (As of Oct. 20, 2010)

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Figure 2: China's HK IPOs During 2008-2010 Advised on by Different Accounting Firms (As of Oct. 20, 2010)

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Figure 3: China's US IPOs During 2008-2010 Advised on by Different Accounting Firms (As of Oct. 20, 2010)

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Figure 4: China's SGX IPOs During 2008-2010 Advised on by Different Accounting Firms (As of Oct. 20, 2010)

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About CVSource

Created by ChinaVenture Group, CVSource is an online database system providing professional information and data solutions, including analysis of equity investment trends, records and analysis of investments and M&A activities, industry research, company analysis, analysis of funds and fund managers, breakdown of investment terms and conditions and studies on regulations on fundraisings and investments. CVSource is dedicated to provide information services to all players active in the Chinese VC & PE market--VC/PE investment institutions, limited partners, strategic investors, investment banks, law firms, accounting firms, research institutes, consulting firms and domestic companies seeking investors.

SOURCE China Venture Investment Consulting Ltd.