Chinese buyout firm Citic Capital Partners says a semiconductor sector rising to tech war challenge is ripe for the picking
- Tech war with US could improve buyout opportunities in China’s semiconductor sector as Chinese tech giants increasingly rely on home-grown components
- Pace of deal making at firm could increase from four deals every year at present
Citic Capital Partners, the Chinese home-grown buyout firm that recently acquired 80 per cent of US fast-food company McDonald’s China and Hong Kong operations, sees potential deal opportunities in China’s semiconductor sector, an industry that is moving rapidly towards self sufficiency amid the ongoing US-China technology war.
With the launch of fifth generation cellular network technology, or 5G, Chinese telecoms companies will increasing rely on Chinese chip makers to deliver their services, Eric Xin, Citic Capital Partners’ managing partner in charge of private-equity investment in China, said. The firm is Chinese financial conglomerate Citic Capital’s private-equity arm.
“Leading telecoms equipment suppliers such as Huawei and ZTE will play a key role in supporting chip supply chain development in China. Over the short term, this change could be tough and will not happen overnight. But in the long run, it will only help Chinese semiconductor companies,” he said in an interview on the sideline of the AVCJ Private Equity & Venture Forum this month.
The United States government has placed Huawei Technologies on a blacklist that prevents American companies from selling it chips and components on national security grounds. Xin said that, as a result, smaller companies in China were getting more orders as US companies such as Intel, Qualcomm and Texas Instruments stayed away. He said this improved buyout opportunities in the Chinese chip sector, but did not specify whether his team had targeted such companies.
While Citic Capital Partners is best known for deals in the consumer, telecoms, media and technology and business services sectors, it is no stranger to technology transactions. In 2015, it was part of a consortium that bought OmniVision, a US maker of chips, sensors and wafer-level components for advanced imaging technologies.
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The firm has US$7.4 billion in committed capital, and in August successfully raised its fourth China buyout fund, which at US$2.8 billion is its largest private-equity fund to date.
The fourth fund has bought Hangzhou UCO Cosmetic, a cosmetics e-commerce platform operator, from Shenzhen-listed parent Qingdao KingKing Applied Chemistry in April. The deal marks its seventh carve-out in two years, after Citic Capital Partners, Citic Ltd and US buyout firm Carlyle bought an 80 per cent stake in McDonald’s China and Hong Kong operations for US$2.08 billion in 2017.
Last year, the firm bought a controlling stake in sauce maker Amoy Food from Japanese group Ajinomoto.
Xin said he saw the pace of deal making at Citic Capital Partners potentially increasing, from four deals every year at present. In 2018 and this year, it on average deployed about US$600 million to US$800 million per year, up from US$400 million to US$600 million per year in 2016 and 2017.
“As our fund size grows, we should be able to plan our business and budget our growth, similar to [how] the business of a company is run,” he said.
Xin, who has run marathons on all continents, including Antarctica, likens his firm to a professional hunter. “If you are a professional hunter, you know that every week you will hunt something. You may not be after exactly the same prey, but you should be able to anticipate steady growth in terms of investment, and potentially returns,” he said.
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With growth in China’s gross domestic product slowing to 6 per cent in the third quarter, Xin said he saw more owners motivated to sell, as private company owners face increasing liquidity stress. This would open up more buyout opportunities, he added.
