Profiting from Private Equity

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While foreign investment is still flooding into China at a rate of over US$1 billion a week (see here), there is increasing activity on the private equity front – it is estimated that over US$6 billion in private equity may flow into China this year, up from US$3 billion in 2005, and just US$1.25 billion in 2004.

A Bloomberg report notes:

    “Investors boosted first-quarter buyouts, equity purchases and venture capital almost eightfold to $3.9 billion from a year earlier, according to Kathleen Ng, managing director at the Hong Kong-based Centre for Asia Private Equity Research Ltd.

    Overseas strategic investors were given access to China’s domestic share market in February. Such investors must buy at least a 10 percent stake and hold it for three years. Regulators this week lifted a one-year ban on listed companies selling stock as the country moves toward resuming domestic initial share sales.

    “With the reforms in the domestic market, that will open another route for potential exits,” said Chris Gradel, managing partner at Hong Kong-based Pacific Alliance Group, which in January completed a $122.5 million buyout of GoodBaby Group, China’s largest baby products maker.

    There were $255.3 billion of announced buyouts globally last year according to data compiled by Bloomberg, a third more than in 2004. Year to date, private equity firms have made $146 billion of transactions, 60 percent ahead of last year’s pace. China’s benchmark Shanghai Composite Index has climbed 32 percent this year, its highest in almost two years, after falling to an eight-year low in 2005. The index fell 0.5 percent to close at 1537.38.”

The report also notes that China accounted for 22 percent of private-equity investment in Asia in 2005, and that the number of completed deals rose to 90 from 1994’s 68. Recent action has included the listing of two of 3i’s seven China ventures – fire alarm maker GST Holdings (Hong Kong, June); and the advertising group Focus Media – known to anyone that has stood in a lift in China in recent times!- (Nasdaq, July).

Show me the money!? Bloomberg, referring to a research from The Centre for Asia Private Equity Research notes: “a survey of 45 exits last year showed 44 percent of them had an internal rate of return of more than 200 percent”.

While the market has obviously come a long way from the days of “Mr. China” But the market is not without problems – political as well as commercial – and Carlyle’s experience with its (still un-approved) US$375 million deal for 85 percent of Xugong Construction Machinery is a case in point. See our recent posts here and here.

However, with the growth in private enterprise, a lack of bank finance, a fast-growing domestic market, and better exist options, there are plenty of opportunities for investors.

China Business Services provides a range of services to investors in China, and has information about a number of Chinese businesses seeking capital. Please contact us if you would like to discuss investment issues.
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2 Responses to “Profiting from Private Equity”

  1. Andy Jones Says:

    For additional information about private equity and hedge funds, see:

    As a brief introduction, Private Equity Info provides an online database of North American and European private equity firms, their contact information, acquisition criteria, portfolio companies and professional bios. We also have a comprehensive database of U.S. registered hedge funds.

    Have a look at the online demo:

  2. Sam Says:

    Given the mature and crowded PE field in the US and Europe, the race to China was invevitable.

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