The fact that private equity firms are recognising the need for a China-orientated growth strategy for their portfolio companies should come as no surprise. Increasingly a China strategy is an integral part of the development of a portfolio company’s overseas activities. This is particularly evident for companies operating in the automotive, chemicals, consumer products, healthcare and industrial sectors where China opens up routes to growth markets across the Asia-Pacific region. Private equity firms with investments in these industries recognise that establishing a China presence for these businesses will directly enhance the appeal of these assets on exit and ultimately increase their appeal to a global audience.
The fact that private equity firms are building assets in this manner is not lost on many Chinese acquirers. In fact, many Chinese groups are specifically targeting overseas private equity-backed acquisition targets as part of a strategy to increase their chances of completing acquisitions. They are mindful that private equity firms will be looking for a timely exit from their investments and will take a more pragmatic view to the sale of these companies. In general, Chinese acquirers believe that most private equity-owned companies tend to come with a cleaner track record and that they are easier to perform due diligence on than some other assets. In addition, Chinese groups perceive that private equity owners have much less of an attachment to an investee company than that seen with many family-owned companies, particularly in key target markets such as consumer brands and industrials.
If you would like any further information on M&A in China, please contact the Clearwater China Desk.