David Fickling is a Bloomberg Gadfly columnist covering commodities, as well as industrial and consumer companies. He has been a reporter for Bloomberg News, Dow Jones, the Wall Street Journal, the Financial Times and the Guardian.

Nisha Gopalan is a Bloomberg Gadfly columnist covering deals and banking. She previously worked for the Wall Street Journal and Dow Jones as an editor and a reporter.

Get over your shock that Anbang Insurance dropped its $14 billion takeover offer for Starwood Hotels. It's more surprising that the proposal got so far in the first place.

Anbang isn't a completely unknown quantity -- it bought the Waldorf-Astoria from Blackstone Group last year for $1.95 billion, and agreed to purchase the Strategic Hotels chain from the same seller for $6.5 billion, according to people familiar with the matter. 

But deals of this size and shape are as rare as hen's teeth. Closely held companies have announced or completed just 15 takeovers valued at more than $10 billion over the past five years, according to data compiled by Bloomberg. Knock out the ones connected to Berkshire Hathaway, Canada's government pension fund, Greece's bank-bailout vehicle, and U.S. private-equity firms, and the number reduces to seven. Two of the remainder involve JAB, the Austrian firm that bought Keurig Green Mountain last year.

The Short List
Closely held firms haven't carried out many deals worth more than $10 billion over the past five years
Source: Bloomberg data

There's a straightforward reason for this famine amid an M&A feast. Acquirers listed on public markets can use their stock as currency in a deal, or sell more of it to raise additional cash. Closely held businesses generally must use debt. That means their success depends on the readiness of bank credit committees to finance the deals, and bankers prefer to spread risk thinly among their most familiar clients.

``Know your customer" is a principle that's meant to prevent banks getting caught up in shady activities such as money laundering and fraud, but it also has a more prosaic purpose -- if you don't know a client's business inside and out, you're flying blind over whether they'll keep up to date on all the money you're lending them. Anbang hasn't helped its case by having such an opaque structure and business model.

Out of Nowhere
Anbang's life insurance business exploded in 2014
Source: Bloomberg Intelligence, China Insurance Regulatory Commission
Note: All figures are year-end data except 2015 policyholders new investment funds, which are January-August

To hear Chairman Wu Xiaohui tell it, the company had little need of backers in the first place -- Anbang has assets ``that far exceed 1 trillion yuan," Caixin Online quoted him as saying this week. But in the absence of any published balance-sheet data, that sort of statement only deepens the mystery surrounding its sources of cash. 

For instance: If Anbang has sufficient capital to make an acquisition alone, why was it working with JC Flowers and Primavera Capital? More to the point, how could this 12-year-old business have assembled a trillion-yuan balance sheet when documents filed with China's insurance regulator show total revenues from property insurance, life insurance and the sale of investment products of just 155.9 billion yuan over the past five years?

Small Fish, Big Pond
Year-end value of life insurance premiums, top three Chinese insurers plus Anbang
Source: Bloomberg Intelligence

There are any number of other reasons why a deal might have fallen apart.

It could have run up against Chinese rules preventing insurers from investing more than 15 percent of their assets overseas, Caixin reported last month. In a U.S. election year, there's also the issue of the Committee on Foreign Investment in the United States, or CFIUS, which scrutinizes foreign takeovers for potential national security concerns. Blocking a hotel deal on such grounds may look about as absurd as the moment in 2005 when a reported PepsiCo bid for yogurt-maker Danone prompted the French government to invoke protection of ``strategic" industries -- but you wouldn't want to rule it out.

You could even point to Wu's stated investment hurdle of only buying businesses at a discount to their book value, which sits oddly next to an offer for Starwood at more than 10 times book.

Ultimately, Anbang's lack of transparency meant that it was only likely to get such a deal done if it could produce the lion's share of the cash itself or from Chinese banks. The company attempted to bid for Starwood before Marriott's offer last year, but the approach fell apart because of concerns over how the bid would be financed, the Wall Street Journal reported. It's never been sufficiently clear that such funds were ready to hand. While there's no evidence of anything awry with Anbang's business model or sources of funds, the business raised enough questions to make convincing circumspect bankers an uphill climb.

The fiasco isn't going to help China's ambitions to make its businesses major players on the global stage, as detailed by Gadfly's Tara Lachapelle and Rani Molla last month. Chinese businesses wanting to make these splashy deals need to work with their customers: Western companies, the banks that support them, and the governments that regulate them. If the likes of Anbang don't understand the bona fides they need to convince those parties to deal, they have a ``know your customer" problem of their own.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the authors of this story:
David Fickling in Sydney at
Nisha Gopalan in Hong Kong at

To contact the editor responsible for this story:
Matthew Brooker at