Merger and acquisition (M&A) activity between Chinese and US entertainment, advertising and digital media companies is likely to increase in the next 12 months, according to a report by Manatt, Phelps & Phillips, a Los Angeles-based law company. The report was based on a survey of 100 industry executives and was conducted in conjunction with Mergermarket, an M&A tracker owned by the Financial Times. It found that 78% of respondents expect US companies to increase their engagement in China and 67% of respondents forecast larger involvement of Chinese companies in the US.

Cinema operators are the most attractive propositions for both US and Chinese investors, according to the survey. Additionally, US companies interested in entering or expanding in China are especially interested in advertising and branding companies, while Chinese companies interested in the US are targeting social media firms.

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US executives are more interested in smaller deals than their Chinese counterparts, with 55% saying that they are most likely to consider transactions valued at less than $250m. In China, 45% of those surveyed stated that they are likely to consider M&As in this size bracket, while 37% would consider targeting companies valued between $250m and $500m.

In 2012, the volume and value of M&A deals between US and Chinese entertainment, advertising and digital media companies reached record levels, with 11 deals valued at $3bn, including the highest valued takeover of a US company by a Chinese firm ever: the $2.6bn purchase of US theatre chain AMC Entertainment by Chinese conglomerate, Dalian Wanda Group in September 2012.

Respondents from both countries cited regulatory restrictions as a barrier to investment, saying that the rate of investment could be even higher if not for these restrictions. Both in China and the US, 40% of respondents cited this as the biggest problem relating to M&A deals between the countries. Additionally, 35% of Chinese investors cited strict disclosure requirements when investing in the US as the biggest obstacle, and 40% of US investors said that the difficulty of obtaining sufficient information through due diligence was the biggest issue when considering investing in China.

More than 30% of respondents in China and 18% in the US expect political relations between the two countries to deteriorate in the next 12 months. More than two-thirds of executives in both countries expect that any deterioration in the political situation would have a major impact on investments and M&A activity.