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More China buyouts for foreign private equity as entrepreneurs struggle with succession

Competition and technological developments have also prompted first-generation businessmen to look for professional advice and management skills

PUBLISHED : Monday, 22 January, 2018, 1:12pm
UPDATED : Monday, 22 January, 2018, 11:11pm

Foreign private equity investors are finding more and more buyout opportunities in China, as mainland entrepreneurs become more open to giving up majority ownership and control as they struggle to find successors in their families, say industry participants.

Growing competition and fast-paced technological developments have also prompted first-generation entrepreneurs to look for professional advice and management skills, said Rebecca Xu, co-founder and managing director of Asia Alternatives.

“The recent trend is an increase in buyout opportunities in China. These are typically companies that have to implement operational transformation, or the first generation of entrepreneurs who, in their sixties, are in succession situations,” said Xu.

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Asia Alternatives has more than US$11 billion in assets under management across buyout, growth and expansion, venture capital and special situation funds. It invests with top performing private equity fund managers across Asia, primarily in China, as well as in Japan, Korea, Southeast Asia, India and Australia.

“More shareholders and founders are willing to give up controlling positions – either immediately or several years later,” she said.

On the other hand, investors are also demanding control over management decisions because of growing business competition, she said.

One example is Belle International, according to Xu.

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In April, two top Chinese private equity companies, Hillhouse Capital Group and CDH Investments, offered to take Belle International, China’s largest shoe retailer, private in a takeover deal valued at HK$53.1 billion (US$6.8 billion).

These are typically companies that have to implement operational transformation, or the first generation of entrepreneurs who, in their sixties, are in succession situations
Rebecca Xu, co-founder and managing director, Asia Alternatives

Belle, which sells top brands such as Staccato, Joyce and Peace and Mirabell, has been hit hard by online competition over the past five years, as struggling bricks-and-mortar stores remain its primary sales channel. The sale was aimed at breathing new life into its struggling business.

“Operating margins and generation of free cash flow have been compressed,” said Edward Huang, the senior managing director of Blackstone Group. “And some of these companies are going global – they think about whether they need a [private equity] partner, and how do they get to the next stage,” Huang, who spoke at the 2018 Asia Private Equity forum in Hong Kong on Wednesday, added.

Asia Alternatives’ Xu said the company would continue to focus on China. In a fifth funding round in September it raised US$1.8 billion.

“We would expect 45 per cent to 60 per cent of our recently closed fifth fund to be invested in our range investing in Greater China,” said Xu. “China among all Asian markets is the one that has a variety of opportunities, and the variety of opportunities is broader compared with other markets.”

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