• Fri
  • Aug 22, 2014
  • Updated: 11:22pm
Mr. Shangkong
PUBLISHED : Monday, 16 June, 2014, 3:07am
UPDATED : Friday, 20 June, 2014, 9:01am

Why dealmakers prefer to talk with 'rich second generation'

With family successors drawn more to Silicon Valley-style business models over 'boring' manufacturing, many are willing to sell their stakes

BIO

George Chen is the financial editor and columnist at the South China Morning Post. George has covered China's financial industry and economic reforms since 2002. George is the author of Foreign Banks in China. He muses about the interplay between Shanghai and Hong Kong in Mr. Shangkong columns every Monday in print and online. Follow George on Twitter: @george_chen
 

Economic uncertainties on the mainland have indirectly helped private equity dealmakers to make more acquisitions as capital-starved companies struggle to survive. Making their job easier is the rise of the second generation holders of family wealth, and even the next generation down.

On the mainland, the term "rich second generation" refers to the sons and daughters of the business founders who built fortunes for themselves and their families. Nowadays, we are also seeing the grandchildren as the wealth moves down to the third generation.

We all know a generation gap can easily see misunderstandings escalate into disputes and that may also explain why some private equity dealmakers find talking to the younger generations can lead to some interesting prospects.

As with most things, passion is the key to success. Lack of interest will not lead to a good result

Last week, a private equity industry forum was held in Hong Kong, where many of the participants observed a trend: a growing number of successful private businesses on the mainland are keen to get new shareholders on board - and even new controlling shareholders.

While the economic challenges are a factor, it is clear that the younger generations are increasingly thinking about what to do next with the family business. Some of them simply lack the interest to keep running these business, and may even think some enterprises in industries such as manufacturing or coal mining are, well, kind of boring.

"The new generation has many new ideas. They have read many successful stories in Silicon Valley and they will naturally ask themselves: why can't I do that kind of new and fancy business to make quick money rather than to stick to a just-so-so but boring manufacturing plant?" said one private equity fund partner.

"Thanks to the second or third rich generation, I actually find now it is easier for me to talk to these pretty successful private businesses about a controlling stake investment deal," said the fund executive, in comments that help explain why parents are inclined to seek private equity when they realise their children are neither ready nor willing to take the helm.

Private equity in Asia does not have a long history. In China and India, in particular, many dealmakers often complain about lack of buyout opportunities at family businesses. While many family business founders tend to feel strongly about family succession, something is clearly changing.

"I once asked a 'rich second generation' kid what he wanted to do if he sold his company to me. He talked about making investments in financial derivatives to make more money, perhaps even faster than what the company his dad founded could earn in a year, without worries about hiring so many people, pressure for pay rises and other troubles," the fund executive said.

If we look at these changes purely from a business perspective, it might be a good thing for both private equity and the family business owners and their successors. As with most things, passion is the key to success. Lack of interest will not lead to a good result. However, such decisions also come with sentimental considerations.

george.chen@scmp.com

 

George Chen is the financial editor and a columnist at the Post. Mr. Shangkong appears every Monday in print and online. Follow @george_chen on Twitter or visit facebook.com/mrshangkong

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This article is now closed to comments

felixdacat@gmail.com
Fund managers and so called financial experts are the most useless people in the world. Study rabidly your entire college career to compete with other people that work really hard but don't know a damn thing about anything. Then when you finally waste all that money beating fellow classmates, you get the privilege to intern for 80 hours a week for the privilege of one day becoming a manager. If you have any decision making responsibilities at all, you are afraid to use it and base everything on useless formulas or hype. Parents insist on pushing their children into these industries, then when every single one of them realize they don't want to be in the industry and/or the industry collapses, we have millions of finance people with absolutely no life skills talking **** because they don't know what they're doing because there isn't anyone telling them step by step what to do.
*By fund managers and financial people I mean any one of these scum people that are too stupid to think of obvious solutions, talk **** continuously, and then just steal an idea that should have been the obvious solution in the first place.
blue
All you need to know about our boy George Chen is here:

www.yaledailynews.com/blog/2014/04/18/chen-investigate-george-chen/

This post keeps getting deleted by SCMP for some reason. It is not defamatory. It is simply linking to accusations against George Chen regarding the accuracy of his resume. The person making this accusation is a Yale student named Erdong Chen (no relation) who is of good character. It has been published as an editorial in the Yale school newspaper.

The comments on the Yale newspaper website seem to be overwhelmingly negative towards George Chen.
donniemcm
"talked about making investments in financial derivatives to make more money, perhaps even faster than what the company his dad founded could earn in a year" this sum up the whole boring and open-door pushing article.
In short they just want to tear off their parents hard-earned and built money and company. Get the money to risk it in property market. Have a short term gain and then cry kneeling to their parents.
Good.
sipsip1238
Dealmakers prefer to speak with second generation for one reason, they are more stupid because they don't know how hard it actually was for their parents to make money.
They think that they can always outsmart the system, when in fact they are the exact fish that dealmakers can gut with ease.
They are not ambitious, they think that they can make better returns, but most of the time, they end up spending their parents money and that's it.
As a PM, I've spoken with enough clients to know who to gut and who to respect, and I can assure you that the old generation aren't people that are easily gutted.
blue
I think George Chen must be one of those second generation brats that think they can outsmart the system and are extremely arrogant. He thought he could falsify achievements in his resume and figured nobody would catch him!
sipsip1238
Thanks for posting this and also the above article, never actually realise his past actions.
Having been on both the trading and the PM side for almost a decade, you learn to respect your supporting staff, because they firstly get paid less (much less) and probably work longer hours than you think, to make such a judgement about someone who killed themselves is not only arrogant, but I would class him as a reputational risk if he was in my team.
Sadly, for every geniune person, there's about 10 scums like him that obviously thinks too highly of himself.
Honestly, if he was any good/smart enough to "outsmart" the system, he wouldn't be sitting there as a journalist.
Thank you again Blue, and I hope more people read this. And Mr. Chen, you're lucky you have a job still.
blue
"Having been on both the trading and the PM side for almost a decade, you learn to respect your supporting staff, because they firstly get paid less (much less) and probably work longer hours than you think, to make such a judgement about someone who killed themselves is not only arrogant, but I would class him as a reputational risk if he was in my team."

As a project manager, I couldn't agree with you more strongly. There's way too many horrible managers out there too. Your "10 scums" hypothesis is right on the money.
 
 
 
 
 

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