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Global China Capital Access is an effort to amass the world’s largest group of independent business and thought leaders focused on two simple and interdependent, missions:

1. Helping US companies secure high quality Chinese capital, and

2. Helping Chinese private equity funds secure high quality deal flow and equity investments with good US companies.

Members of our group and their associates have provided guidance, strategy, leadership and other direction to essentially every member of the Fortune 500 companies, and to governments, organizations and private equity funds around the globe.

Our current membership resides in 7 countries and four continents. The combined intellectual property of the member firms comprises over 70 commercially published books, a thousand published articles, and thousands of audio, video, and public speaking appearances.

Our mission includes providing strategy, cultural awareness, integration, and operational guidance to both companies seeking high quality Chinese capital, and to the Chinese private equity funds providing investment, to assure the highest probability of success possible.

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The Best Day Of My (Business) Life… Confirmation that China is Marching into the Outbound Private Equity World.

 

This was one of my predominate thoughts as I sat in Shanghai on December 7th, waiting to give my talk (on China Outbound M&A and Post Merger Cultural Integration) as a “Key Speaker” at the 9th M&A in China Summit; “this is the best day of my life.”

Why? Why would I think such a thing?

Since 1990, I’ve been talking about China’s massive power and potential in terms of “going out” (ie Cross border M&A, and more importantly (as I view it) private equity funds such as Hony Capital, now doing the same).

For years, especially since selling my business in Taiwan in 2005 and “committing the rest of my life” to being involved in private equity (and attending multiple pe events as a result) I’ve been talking about this “Outbound China PE story.”And for years, the concept has mostly fallen on deaf ears, with inbound FDI to China being the focus. There are no hard feelings, I fully get why the historic focus was inbound, I’m just REALLY THANKFUL this (irreversible and massively powerful) trend has now begun.

There were 19 other Key Speakers at this GIC Summits event; 6 of us spoke on different aspects of Outbound China PE! I spoke a the same event earlier in the year and NOBODY else spoke on the topic (or seemed like they wanted to talk about it).

I talked with the event organizer, and he tells me that in about February of this year (2011) that the topic of Outbound China Private equity became “hot.” I understand that top China PE funds have made seven acquisitions so far in the USA, so this truly is a trend that is just beginning.

I’m excited, as I know that if China utilizes the proper strategy, and amasses the proper teams (both internal and external), that they can truly change the way the world does business.

Imagine, tens or hundreds (or more) of world-famous, China owned, brands. I can, and do, and have for 22 years now. Now it appears, if all do what is necessary, it will happen.

Thank you God!

Wishing you all a very Merry Christmas and a wonderful and prosperous 2012 (with your new Chinese PE equity partner?)! 😉

Competency (real or perceived) – Two choice paths

It’s very important to your US private equity success that you and your entire team be perceived as (and be) highly competent.

You may use this simple diagnostic to facilitate honest discussions around your degree of preparation and true degree of competency towards succeeding in the US market. You must measure yourself both against competing Chinese private equity funds AND US based pe funds with which you will be competing.

The illustration below shows how the end outcome of reputation and opportunities (and eventual success or failure) is affected by this issue.

If you are not optimally prepared, you need to become so prior to attempting to enter the US marketplace. Failure to do so will sabotage your potential for success, damage your reputation and partially or entirely close doors that you will need open to succeed in the USA.

The USA is very small in many ways, and your reputation will spread quickly, good or bad.

Firms with good reputations will be welcome and those with bad reputations will not.

Your preparation, professional and choices will determine your reputation.

There is nothing more important to guard, as it relates to your success in the USA.

The Three Nosebleed Rule

A quick story. In 2007 when I was hired as Managing Director for the New York based Boutique Investment Bank to run their China operation, I wanted to make a good first impression on the CEO, who I’d not met prior. He flew in to China and we began my first day with series of meetings with “highly qualified” prospect companies seeking to raise funds, etc.

We had decided that our firm would charge up-front retainer and fees, in addition to the standard “success fees” charged by all competitors. Our competitors were charging no up front fees and about ½ the success fee we were asking… (NOTE: We went on to successfully closed multiple engagements, with six figure USD upfront fees, when nobody else in China was doing so, with a closing ratio in the high 80% range, all because of the rule that follows.)

After the first day, over a drink with my partner and the CEO, the CEO asked me, “how do you think today’s meetings went?”  I responded “I thought they went well.”  He went on to say “if you ever set meetings like those again, I’ll fire you.”  Wow. What a surprise… that was the last thing I had expected, as the meetings were with strong, well qualified companies that were also being “pitched” by other investment banking firms. I thought I’d done a good job, and set up “impressive meetings.”  My bulge-bracket investment banking, Senior Managing Director, partner (who had hired me) had thought so too.

The CEO went on to say, “do you know the three-nosebleed rule?” I told him I did not. He explained that the firm had a rule, that they would only meet with companies that had had at least three nosebleeds. He defined three nosebleeds as having tried unsuccessfully, without proper investment banking guidance, to raise capital, do a joint venture, merger or other any other complex transaction.

His claim, and it proved to be very true, was that NO CEO of any company, unless they had at least three nosebleeds, would properly perceive the value of our services.  Less than three nosebleed CEOs would always feel “they could do it themselves,” or “find somebody cheaper,” etc. etc. etc. Those CEOs that had had three or more nosebleeds, if they believed in our abilities, would quickly agree to the fee and gladly pay it; they knew how difficult it was to succeed without proper guidance and understood accurately the value of a seasoned and successful team.

Chinese private equity firms set sail abroad

Chinese private equity firms set sail abroad   2011-10-08

(Reuters) – Flashed on the side of a building here in Shanghai’s historic Bund district, an image shows a giant ship named “Hony,” setting sail from China, traveling past the Statue of Liberty, past Big Ben, and bringing home crates of golden coins.

Hony Capital, the Chinese private equity firm the picture represents, hopes that someday soon, art imitates life.

After years of focusing on their home turf, Hony and other China funds are expanding abroad, slowly but steadily moving across Asia and into parts of the Western market.

The aim of the funds is high, with managers stating their hopes to compete for investment dollars as well as deal opportunities with western giants like Blackstone (BX.N), TPG TPG.UL and the Carlyle Group CYL.UL.

The barriers are high as well, as expanding overseas is always difficult, and the acceptance level of Western executives and fund of fund investors for Chinese players is still fairly untested.

Intense competition for deals at home, plus international ambitions of Chinese companies like consumer goods group Bright Food are fuelling the move to send China private equity businesses across borders.

Private equity executives in China stress the move is gradual, though whatever the speed, it’s happening.

“As the world’s most vibrant economy, China has attracted the world’s best companies, resources and wealth,” John Zhao, Hony Capital’s President said at the Shanghai ceremony earlier this month, attended by local government officials as well as scores of overseas institutional investors.

“Chinese companies have also started sailing abroad,” he said. “This is Hony’s opportunity.”

Hony is not alone in its international plans.

Citic Capital, owned by China sovereign wealth fund CIC and the state-backed conglomerate Citic Group, has a Japan fund and an international co-investment fund. The firm has done five deals in Japan and is closing in on a seventh deal in the United States.

In addition to seeking deals that they and Chinese corporations can take part in, the cross-border push of Chinese firms such as Hony, Citic and CDH has another motive: attracting overseas investors into their funds.

In luring money from Western institutions such as pension funds and banks, analysts say some Chinese firms have an advantage over their much larger global rivals due to their strength in the China market — an area the institutions want exposure to.

Some Chinese firms now have both a dollar and a yuan fund at their disposal, which gives them an advantage over firms with only a U.S. dollar fund.

Hony, a unit of Legend Holdings, has raised more than $2 billion in four dollar funds from investors including Goldman Sachs (GS.N), Temasek TEM.UL and Stanford University since 2003.

During the past two years, at least six home-grown Chinese firms, including Fortune Venture Capital and Jiuding Capital have launched or plan to launch their first dollar funds, according to Zero2IPO.

Highlighting the fundraising ability of Chinese firms, Citic Private Equity Funds Management Co raised $1 billion in May in its first dollar fund after attracting foreign demand.

The fund, which was heavily oversubscribed, obtained investment from 39 overseas institutions including sovereign wealth funds, pension funds, endowments, family offices and insurers.

Private equity research group Preqin estimates that there are 538 Asia and global funds on the road looking for a total $177 billion in capital. That broad array allows investors to be choosy about who they fund. And some are expected to still be cautious about the fast growing, heavily regulated and unpredictable China market.

INVESTMENT OPPORTUNITIES

Through launching dollar funds, many Chinese private equity and venture capital firms hope to win more deals from foreign rivals as many Chinese companies seeking an overseas listing prefer hard currencies funding.

For example, many Chinese internet companies including Baidu (BIDU.O) and Sina (SINA.O) used offshore structures to obtain foreign venture capital investments ahead of their Nasdaq IPOs to avoid rigid Chinese regulations.

Foreign-currency funding is also preferred by a growing number of Chinese companies seeking acquisitions abroad.

Hony, for example, helped Chinese construction and mining equipment maker Zoomlion (000157.SZ) in its acquisition of Italy’s Compagnia Italiana Forme Acciaio SPA.

According to sources close to the firms, Citic and CDH, along with newcomer Beikai Capital are eyeing buyouts of China’s so-called orphan stocks, companies listed overseas that may have been unfairly tainted by a raft of accounting and governance scandals from other Chinese companies.

The scandals have hammered stock values, and taking the companies private to relist in China offers a quick arbitrage play. Such a practice would require a dual-currency fund structure under which the dollar fund is used to acquire, and take private an overseas-listed company, transfer the interest into a yuan fund, before taking it public in mainland China.

“More and more overseas-listed Chinese companies are looking to come home, where they can fetch higher valuations and get more brand recognition,” Beikai partner Shuang Rongqing said. “I think that would the trend going forward.”

CDH Investments has $4 billion in domestic China assets under management. The firm recently teamed up on a take-private bid with TPG Capital for Nasdaq listed CNInsure Inc (CISG.O), though that bid collapsed.

Industry insiders say working with TPG on the deal gave CDH vital experience of U.S. buyout processes.

And partners at international funds are watching the firm overseas. They believe CDH’s Singapore office will give the firm a role in Indonesia, where China’s SOEs are actively hunting assets.

“It’s very clear from our conversations that it’s a matter of time before Chinese institutional investors make big allocations for outbound investments,” said Patrick Walujo, partner at Northstar on a panel, discussing Indonesia.

Mandarin Capital Partners To Invest US$58 Million In Italy’s Miroglio Group

Mandarin Capital Partners To Invest US$58 Million In Italy’s Miroglio Group

Wednesday, June 8th, 2011 In Fashion / Luxury / Trends

Domestic Private Equity Firm Looks To Join International Fashion Industry

Motivi store in China (Image: Miroglio)

In the latest example of a Chinese investment firm looking to “go global”, Mandarin Capital Partners, the largest Sino-European private equity fund, recently announced plans to pour €40 million (US$57.9 million) into Miroglio, the second-largest women textile group in Italy. Under the deal, Mandarin Capital and Moroglio will jointly invest in the Chinese fashion industry while seeking to enhance the operational experience of Chinese fashion companies.

Part of a more than US$700 million fashion sector investment by Mandarin Capital, the agreement was included in a more than $3 billion package of deals signed in Italy last week in the presence of Italian Prime Minister Silvio Berlusconi and Chinese Vice President Xi Jinping.

Founded in 1947 and headquartered in northern Italy, Miroglio now controls 58 companies in 36 countries around the world, and employs around 12,000 employees throughout over 2,000 outlets. One of Europe’s largest textiles and fashion retailers, the group has spent the last several years focusing more intently on emerging markets like China, Russia, Brazil and Turkey. In China, the Miroglio Group is perhaps best known for its fast fashion brand Motivi, a favorite among young female shoppers. Aimed at the same consumer base as brands like Zara, Motivi currently has locations in Shanghai, Beijing, Harbin, Dalian and Shenzhen, with plans to open more than 100 new outlets in China over the next three years.

A partnership between two major Chinese banks, China Development Bank and the Export-Import Bank of China, and the second-largest Italian Bank, Intesa Sanpaolo, Mandarin Capital Partners appears to be adopting a policy of investing in the fashion industry similar to that of China’s Fosun Group. As Jing Daily recently noted, Fosun, one of China’s largest private companies, recently announced plans to invest US$121 million in the Greek fashion house Folli Follie to help the latter more effectively tap China’s growing consumer market. In addition, Fosun earlier announced an additional $600 millionjoint investment fund with Prudential Financial designed to invest in Chinese companies as well as foreign firms.

Miroglio plans to open 100 Motivi outlets in next three years to response to increasing demand from Chinese consumers (Image: Miroglio)

While European companies like Miroglio and Folli Follie have benefited from the fashion investment craze taking hold among Chinese investment firms, some in China are left asking: why aren’t they investing more in home-grown brands? As China’s Caijingsuggests this week, these Chinese upstarts may find it even harder to catch up with their increasingly well-capitalized, expansion-minded foreign counterparts if this uneven investment continues. FromCaijing (translation by Jing Daily team):

Over the years, a large number of top European brands have accumulated a great deal of experience in terms of product design and development, marketing, retail management and talent training. In contrast, many domestic Chinese fashion companies lack a clear perspective of brand positioning and development. Up to now, few could name a Chinese brand that could stand out in the international market, partly due to the homogeneous nature of competitors in the Chinese domestic market.

As labor costs and raw material prices continue to rise, Chinese companies will have to enhance brand image and operational efficiency in order to survive in such a competitive world.

Whether the current trend of Chinese firms investing in international brands (usually with China-facing intentions) ultimately will benefit home-grown brands will remain to be seen. Unfortunately for Chinese brands, despite their efforts to reposition themselves on equal footing to European imports, Chinese consumers–and investment funds–still seem to have a “brand bias” that will likely take years to change.

Chinese private equity desiring to invest in US companies need more TLC…

I attended an investment conference last year. The primary crowd were large LP looking for investment in Asia.

One of the speakers said that a primary determinate and quality they looked for in potential partners was “more TLC.” Having grown up in the USA where “TLC” means “tender loving care,” I though it was an odd comment.

The speaker then went on to explain that:

“T” stood for transparency and track record

“L” stood for longevity, and

“C” stood for consistency.

Given this new definition, TLC (transparency, track-record, longevity and consistency) makes a great deal of sense to me.

It’s important to understand that American businessmen have heard for three decades now, horror stories of Chinese companies that have NOT demonstrated TLC. For this reason, it is even more important that you do, not as a technique, but as an expression of true base integrity, if you wish to succeed in the USA.

Chinese firms that demonstrate large amounts of TLC have a massive and unique opportunity at present, and will do very well in the USA (assuming the are honest with themselves, and do what is necessary to succeed. Those without TLC will fail and make it harder for all.

Diagnostic: Chinese private equity funds wishing to enter the US market.

Diagnostic for Chinese private equity funds wishing to enter the US market (PDF).

Use this simple tool for assistance in determining your probable degree of preparation and collective (team) competency towards succeeding in the US marketplace.
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