Last week, Asian-European private equity firm Asia Germany Industrial Promotion Capital (AGIC) amassed $1 billion for its debut fund, AGIC Fund I.
The specialist fund, which will be invested in European small- and mid-cap companies focused on high-tech intelligent manufacturing, was launched in March 2015 and mainly backed by Chinese sovereign wealth fund, China Investment Corporation.
The firm made headlines last year with two big-ticket outbound transaction from China into Europe: the acquisition of German manufacturer KraussMaffei Group for €925 million as well as its takeover of Italian tools and robotics company acquisition of Gimatic for €100 million.
Private Equity International recently caught up with AGIC’s Munich-based partner Heiko von Dewitz on how the firm’s Sino-European strategy would play out at a time when trade protectionism is on a rise globally.
PEI: Could you elaborate on AGIC Capital’s cross-border strategy, acting as bridge for European companies set to enter the Asian market?
Heiko von Dewitz: Our value proposition is that the kind of companies we invest – small and mid-cap – typically would have a hard time expanding into Asia just on their own because entry hurdles are quite high. It’s of crucial importance to have a strong network in Asia and to have quick access to customers and sales channels. Many European companies are unfamiliar with business practices, business culture, and decision-making in Asia. These are challenges that companies would have a hard time mastering on their own. This is where we provide and contribute hands-on support, we make customer introductions leveraging on the network of AGIC Capital founder and chairman Henry Cai, a veteran dealmaker in the region. We go and develop with them the full market entry strategy and also support them in the implementation afterwards.
PEI: The Chinese government has tightened restrictions and increased scrutiny on cross-border deals, how will this make an impact on AGIC Capital’s investments?
von Dewitz: China clamping down on overseas deals has created some uncertainty in the market, primarily with respect to strategic buyers. AGIC Capital is unaffected because we are a private equity fund. We expect that European companies with an Asian angle will be gravitating even more towards AGIC Capital in the future because other possible alternatives might not be as certain or might have gone away altogether.
We think that the overriding business logic for European companies to expand into China is very much intact, but the channels and the ways of doing so have diminished. As a private equity fund with strong access to China, AGIC Capital is in a stronger position relative to our peers. Overall, we think the cross-border theme and strategy will remain very valid and attractive so we don’t expect any change here.
PEI: What’s your view on the increasing trend of protectionist trade policies globally?
von Dewitz: There’s some overall uncertainty in the markets about trade relations and emerging protectionism weighing on business sentiment and only time will tell if that will be justified or not. In terms of deal activity and private equity opportunities in cross-border investments, we remain quite optimistic. For example, if you look at potential protectionist policies that the new US administration may adopt, we would expect that to make the ties between Europe and Asia even stronger. I’m referring to just one scenario of many, but I think in any case the mutual importance of cross-border business and trade between Europe and Asia will continue to grow.
PEI: How is your deal pipeline looking this year?
von Dewitz: Our pipeline is very well filled. We established a strong position in the market and that’s reflected in the quantity and quality of deal opportunities that we are seeing now accessing. We are looking at two to three new deals this year ranging between $200 million to $350 million on the low side and up to $500 million on the high end of the spectrum.
PEI: What else lies ahead for the firm?
von Dewitz: AGIC Capital has been off to a good start, ramping up our business and positioning ourselves in the market, with a distinct profile and value proposition, which is very well received in the market. This makes us very content and we will grow the momentum further.
There’s lots of headroom to grow. Our London office which will open this quarter is another testimonial for growth and of expanding our footprint in Europe. That’s probably not the last office in Europe we will have.
Our timing for raising capital for our second fund will depend on the pace at which we will deploy capital of Fund I. We are, however, not in a hurry. We will focus on strong portfolio development, on new deals and as soon as we think that the performance of Fund I becomes visible and the value that we created becomes visible, we may start fundraising.