VC, private equity firms looking overseas for opportunities in China

By Cai Xiao (August 2, 2012 15:52)

Venture capital and private equity companies that concentrate on opportunities in China are now looking to invest in foreign companies, especially those with plans to expand in China.

The cash-rich companies’ overseas forays are coming as opportunities in the Chinese market become less common amid the country’s worst economic slowdown in nearly three years.

A Capital, a Beijing-based European private equity firm that invests in European companies, is trying to raise up to 500 million euros ($613.6 million) from Chinese investors such as China Investment Corp, the country’s sovereign wealth fund.

“We have a dozen deals in progress,” said Andre Loesekrug-Pietri, chairman of A Capital.

Loesekrug-Pietri declined to say which companies A Capital is investing in, but among them, he said, is a well-known consumer product company in northern Europe – which has less than 2 percent of its global sales in the Chinese market – an automotive company in Germany and an energy company.

A Capital plans to initially hold minority stakes in the consumer-product and energy companies. Doing so, Loesekrug-Pietri explained, will not only lower the company’s investment risks but also come as a form of cooperation that is more acceptable to the beneficiaries of the investments.

“Going for a minority stake is increasingly recognized as a way to tap into high quality assets that would otherwise not be for sale or out of reach for Chinese investors,” he said.

“All of these three companies are very profitable,” Loesekrug-Pietri said.

“They do not need money but they are ready to talk to us because we not only bring them money but solutions to grow faster in China.”

He said Chinese companies are eager to import advanced technologies and management experience. He also said that European companies feel confident about China’s economy, and that those who have succeeded or will succeed the current owners of these companies will be more open to bringing in strategic or financial investors.

Wu Kezhong, president of the Shanghai-based Chinese private equity firm PreIPO, said Chinese companies generally have the wherewithal needed to make investments.

“China lacks important and sustainable research and development technologies, not money,” Wu said. “We are bringing three global clean-technology projects to China.”

In May, the Beijing-based China Broadband Capital Partners invested $70 million into the US software company Evernote Corp, one of the largest investments by a Chinese venture capitalist in a foreign company this year.

The investment firm IDG Capital Partners took part in a Belgium-based deal when it put $7 million into GlamSmile Dental Technologies Ltd earlier this year, according to the magazine Asia Private Equity Review.

Jacob Rothschild, chairman of the UK-based investment trust RIT Capital Partners PLC, has said he is working to establish RIT’s first fund that will be aimed both at helping Chinese companies expand overseas and at attracting foreign companies that possess advanced technology to China.

RIT and the Chinese equity investment Creat Group have committed $100 million in seed money to a joint venture that they hope will eventually raise $750 million. The other investors in the project are expected to be made up mainly of private Chinese enterprises.

“We will take influential minority stakes in companies,” Rothschild said. “In line with our investment philosophy, we will act as a supportive partner to management.”

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