Who's afraid of private equity?
Updated: 2007-09-06 10:53
Once called "raiders" in the United States, private equity investors are now coming in packs to China, a country where PE was a completely unknown phenomenon even 10 years ago.
Zero2IPO, a Chinese investment research firm, recorded a year-on-year increase of 102.2 percent in PE funds raised to target China in the second quarter of 2007, not including venture capital funds.
Based on statistics from 15 funds, the amount was US$5.79 billion, the bulk of which was raised abroad. Going by the Zero2IPO figure, the amount of PE funds raised in the first half of the year stood at US$13.4 billion, almost equal to the amount for the whole of 2006.
Buyout firms like Carlyle and Blackstone are often seen as predators in the US. AT Kearney, a global consulting firm, pointed out in a report this year that there are still common misconceptions that PE funds have no long-term commitment and that their sole goal is maximizing short-term gains, often achieved by cutting jobs, breaking up companies and hiving them off.
But for the Chinese, PE is just another form of foreign investment. Corporate leaders, especially from the private sector, embrace it as a partner with money and managerial quality.
Commenting on Carlyle's investment in Target Media, Yu Feng, founder of China's second-largest multi-channel advertising media company that was later merged into Focus Media under Carlyle's advice, says Carlyle offers support to Target Media in various aspects including strategy-making, structuring the management, merger and acquisition moves, corporate governance and listing procedures.
"They are sharing their global experience with high-growth companies like us."
Zero2IPO data show 31 of the 45 PE investment deals in the second quarter were targeted at high-growth companies, with a total investment of US$1.018 billion.
Network synergy
After infusing the management team of a company with new entrepreneurial spirit, PE investors systematically use the international network of companies in their portfolio to improve its performance.
European PE firm 3i, which invested US$20 million in Inner Mongolia Little Sheep Catering Chain Co, based in the Inner Mongolia Autonomous Region, invited Nish Kankiwala, former president of Burger King, and Yuka Yueng, CEO of KFC Hong Kong, as non-executive directors in the Chinese company to help it draw up its strategy and sort out its management issues.
3i itself chaired two seats on the company's board of directors, using its global network to help its portfolio companies explore an overseas market.
"Our purpose (to introduce PE) was not money, but wisdom. The purpose was to introduce high-level management and high-quality talent," says Zhang Zhanhai, CEO of Little Sheep.
In another case, Carlyle actively used its network in the US to help Shanghai Anxin Flooring Co Ltd, a leading solid wood floor manufacturer in China to launch the ARK sub-brand in the American market. The firm has successfully set up 50 sales outlets in the US with Carlyle's help.
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