China the top destination for private equity
(China Daily)
Updated: 2007-02-12 13:34
In the world of private equity, all eyes are on China. At about US$10 billion, Greater China including the Chinese mainland, Hong Kong and Taiwan was the second-largest market for private equity in Asia in 2006,with a compounded annual growth rate of 74 percent since 2000.

Only Australia received more private equity. Greater China now represents 18 percent of all private equity activity in Asia.

But for the more than 300 private equity firms that have set up shop in China, placing the right investment bet is becoming increasingly complex.

For one thing, elevated prices for publicly traded equities have driven up the value of potential target companies.

Another complicating factor: Regulators have tightened the reigns on private equity investors. With so much money chasing a limited number of high-quality companies, smart private equity firms are differentiating themselves by honing four skills:

First, they are choosing wisely.

Private equity players have always started with a clear thesis of how value is created. In China today, three investment hypotheses are particularly promising. The first involves helping companies do a better job of penetrating export markets; that was a major impetus for Texas Pacific Group, General Atlantic and Newbridge Capital to invest US$350 million in Lenovo for its purchase of IBM's PC division.

In addition, they are targeting dynamic new sectors benefiting from the rise of a consumer class.

That's why private equity group 3i plans to invest up to US$200 million in China annually, with a focus on China's food and beverage industry.

The last recognizes that selected industry niches home appliance manufacturing, for example are becoming globally competitive players.

Second, they are exercising quiet influence.

Even when they lack controlling interest, fund managers like Morgan Stanley, Actis China Investment Company and CDH China Fund, put their know-how and range of contacts to use with quiet authority.

(For more biz stories, please visit Industries)

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