China-focused private equity firms eye mergers and acquisitions in consumer staples, overseas expansions
- Investors seek diversification, ‘predictable growth’ at times of economic uncertainty, says Sam Sun, partner at Beijing-based Atlay Equity Partners
- China’s private equity firms are transitioning from being growth-investment and venture capital-driven, to one that could see more buyout players
China-focused private equity firms are eyeing mergers and acquisitions (M&A) in consumer staples and overseas expansion opportunities as the country’s slowing economy and escalating geopolitical tensions with the west put pressure on exits, several industry sources told the Post.
Investors are seeking to diversify their risk portfolio and prioritising “predictable growth” at times of economic uncertainty, said Sam Sun, partner at Beijing-based Atlay Equity Partners.
“That is why buyouts and consolidations in sectors such as consumer staples and advanced manufacturing are becoming more attractive,” he said. “These sectors tend to have very sticky customers, very predictable financials, and good cash flow.”
Buy and build, a strategy whereby PE firms acquire one company that has developed expertise in a certain industry, and use that company to acquire another company, is common for consumer deals, said another yuan buyout fund manager, who asked not to be identified due to the sensitivity of the subject.
Chinese companies tend to be smaller in size and have weaker cashflows compared to their US counterparts. Therefore, consolidations in the form of mergers and buy and build could help these Chinese companies explore synergies and create value, making them more attractive in the eyes of potential buyers, the source explained.