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It seems quite appropriate that we're ending 2013 with word of yet another acquisition and New York IPO plan in China's Internet space by leading search site Baidu (Nasdaq: BIDU), capping a year that will go down as the most active for Chinese online M&A in the sector's short but colorful history. It's certainly appropriate that Baidu's name is connected to both of these final news bits for the year, since the company and e-commerce leader Alibaba were the 2 most active drivers of this year's M&A wave.

I've already discussed my outlook for Chinese Internet IPOs in New York next year, and I'll review that again shortly as we look at the latest rumors involving a planned listing next year for Baidu's iQiyi online video unit. But I haven't really discussed the M&A trend and whether it will continue into 2014, following the latest reports that Baidu has purchased the online literature unit of game operator Perfect World (Nasdaq: PWRD) for 190 million yuan ($31.6 million). I do think the M&A trend will also continue next year, though the pace of deals could slow down a bit as the market starts to run out of attractive and easy takeover targets.

All that said, let's take a closer look at the acquisition of Perfect World's Huanxiang Zongheng online literature unit by Baidu, which was first rumored about a month ago (previous post). Perfect World didn't give any other details in its official announcement of the deal, except to say that the move was part of a broader divestiture of its non-core assets (company announcement). Baidu didn't issue any formal announcement that I could find, probably because the deal was relatively modest compared to some of its bigger purchases this year.

This year saw Baidu make a number of major acquisitions worth hundreds of millions of dollars, with deals in the online video, group buying and the online app store spaces. Alibaba was equally active, with purchases focused on building up its mobile and social networking portfolios. Social networking giant Tencent (HKEx: 700) was also in the M&A headlines during the year with its purchase of a stake in leading global game designer Activision Blizzard (Nasdaq: ATVI).

Baidu's big online video purchase earlier this year saw it pay $370 million for PPS, which it combined with its existing iQiyi unit to create the nation's second largest player behind only Youku Tudou (NYSE: YOKU). Since then rumors have popped up several times that Baidu intends to make a separate New York listing for iQiyi. That talk has accelerated since Baidu's successful listing 2 months ago of its online travel services unit Qunar (Nasdaq: QUNR). iQiyi's CEO was reportedly in the U.S. earlier this month to meet with investment banks, and now media are reporting the unit has named a new CFO as part of its quickening move towards an IPO.

I've previously said I don't think an IPO for iQiyi looks that attractive, since the company is most likely still losing lots of money and its main asset is simply its connection with Baidu. But that said, I do think that if Baidu really wants to do an IPO for the unit, it certainly should do so sooner rather than later. That's because I've previously predicted investor appetite for existing and newly listed Chinese Internet companies will continue to be relatively strong in the first half of next year, but could quickly fade after that as investors lose interest in the space. As to M&A, we could also see a similar trend next year, with momentum continuing strong in the first half of the year and then fading in the second half, as the most attractive targets get purchased and only mediocre candidates remain.

Bottom line: Baidu's purchase of an online literature firm and rumored IPO for its video unit signal momentum will continue for M&A and IPOs by Chinese Internet firms in the first half of 2014.

Disclosure: No positions

Source: Baidu Ends Year With 'Perfect' Buy, Video IPO Talk