Private equity looks toward China

Private investors continue to seek opportunities in China as the mainland shifts its economic focus from exports and manufacturing to consumption and services.

On Sunday, Ocean Link, the first private equity firm focused on the tourism sector in China, announced a strategic partnership with Ctrip, the largest online travel agency in China, and General Atlantic, a US global growth equity firm.

"The travel and tourism sector in China is at a pivotal period of growth. The industry's ongoing transition will provide Ocean Link with ample opportunities to bring capital and operational expertise to innovative companies serving the rising number of travelers in this market," said James Liang, co-founder, chairman and CEO of Ctrip.

Bain & Company's "Greater China 2016 Private Equity Market Overview", which was released earlier this year, found that the greater China private equity (PE) market had a blockbuster year in 2015, driven by a surge in multibillion-dollar deals and growing opportunities in the digital/internet sector.

The business consultancy found that deal value jumped 56 percent to a record $69 billion last year, due to a doubling of multibillion-dollar deals - 14 in 2015, up from seven in 2014. Robust PE activity in the internet sector accounted for 40 percent of deal value, up from just 15 percent in 2014, and more than 50 percent of volume, far exceeding other sectors.

"Public-to-private buyouts soared to $17 billion in value, more than three times the five-year average, and made up 14 percent of total PE deal value in 2015," according to Bain's Asia-Pacific Private Equity Report 2016. "The trend spawned three of the top four deals in China including the $7.1 billion Qihoo 360 deal, the $3.1 billion buyout of WuXi PharmaTech led by a consortium of PE funds, and the $3 billion buyout of mobile social media company Momo, put together by the company's CEO, Matrix Partners, Sequoia and Huatai Ruilian Fund Management."

The Bain report said digital technology increasingly defines the daily routine in middle-class China and companies offering internet-based solutions are exploding, generating interest among PE funds looking for growth.

Warburg Pincus LLC has been active in the Chinese mainland since 1994 when current global Co-CEO Chip Kaye established a Hong Kong office. The firm has invested more than $6.5 billion and supported the growth of nearly 100 companies in China - making it one of the largest global private equity investors in the country.

"We are confident on the long-term growth of the Chinese economy and the investment opportunities driven by the consumption upgrade, which translates into investment themes in various sectors," Mingxia Li, communications director for the firm in Beijing told China Daily in an email.

Li said Warburg Pincus takes a sector-focused, thesis-driven investment approach to investing. The firm's current portfolio of more than 30 Chinese companies covers six sectors: energy; financial services; healthcare and consumer; industrials and business services; real estate; and technology, media and telecommunications.

paulwelitzkin@chinadailusa.com