PE, VC firms opt for China unicorns

Private equity and venture capital investors seem to have a preference for Chinese unicorn companies in the telecommunications, media and technology (TMT) sectors, a report from international accounting firm PricewaterhouseCoopers showed on Tuesday.

There were 49 private equity (PE) and venture capital (VC) deals in those sectors in the first half of 2017, and each had a single deal value worth more than $100 million, the PricewaterhouseCoopers report showed.

A unicorn is a startup company valued at more than $1 billion.

A total of 1,582 PE and VC deals were made in Chinese TMT sectors in the first half of 2017, up 104 from the second half of 2016 and a new half-yearly high. These deals garnered a total value of $30.8 billion, up 22.9 percent from the previous six months.

In the first six months, 49 deals had a single deal value of more than $100 million, up nearly 50 percent from the second half of 2016. These large deals accounted for more than 70 percent of the entire value of deals in the TMT sectors during the period.

"Both investment volume and value rose in the TMT sectors, which again indicates that investors still believe that the TMT sectors in China have great potential," said Amanda Zhang, PwC North China private equity group leader.

"The outstanding performance of large deals further reflects that investors prefer unicorn companies with leading positions and stable businesses," Zhang said.

Zhang added that in the first half of this year, the number of deals with a single deal value of less than $100 million exceeded 1,500, indicating investors are still looking for the next potential unicorn enterprises.

Brian M.Y. Choi, PwC China assurance partner, said although private equity and venture capital investors had a keen interest in unicorn companies, risks in large-sized investments still can't be underestimated.

"After rounds of consolidation in the industry, there are risks that some target companies have excessive valuations," Choi said. "Additionally, as most of the Chinese unicorn enterprises now serve internet consumers in the local market, the regional economic cycle will have a bigger impact on them than before."

Choi added that in the emerging industries where many of the unicorn enterprises operate their business, laws and regulations have yet to be well-established, so investors need to prepare for policy risks.

With regard to sub sectors, internet and mobile internet was again the most popular, generating a deal value totaling $21.3 billion in the first half of 2017, including three deals each worth more than $1 billion. Other popular sub sectors included technology and entertainment and media.