Bain & Co: 2017 was the year of China mega-buyouts

Transaction value picked up last year with $73bn worth of private equity-backed investments led by mega-deals.

China’s private equity industry is maturing with more growth on the horizon and an increase in buyout transactions, according to Bain & Company.

Private equity-backed transactions totalled $73 billion in 2017, up from $63 billion in 2016, led mainly by mega-deals, the firm wrote in its Greater China Private Equity Report 2018.

Mega-deals last year include CDH Investments and Hillhouse Capital’s $5.8 billion purchase of retailer Belle International, Baring Private Equity Asia and Canada Pension Plan Investment Board’s $4.3 billion buyout of Nord Anglia Education, and Blackstone’s $800 million takeover of packaging company ShyaHsin.

The average deal size stood at $128 million, around the same level as in previous years – $123 million in 2015 and $119 million in 2016.

A key trend last year was Chinese corporate buyers being less acquisitive since 2016 due to stricter capital controls, Bain noted. Technology giants Baidu, Alibaba, Tencent and (BATJ), on the other hand, have been ramping up investments in technology, media and telecommunications as well as healthcare, education and retail. BATJ backed 38 domestic deals totalling $10.8 billion last year, compared with 30 deals and $4.1 billion in 2016.

“The country continues to be one of the most attractive market for investors, but it is clear that firms need to invest and focus on areas such as cost transformation and management going forward as macro conditions become less sanguine,” said Kiki Yang, a partner in Bain & Company’s private equity practice and the firm’s regional Asia-Pacific practice co-leader.

This means that GPs need to develop their value creation plans to win in the market. According to Bain, GPs’ strategic moves need to include applying digital thinking to their portfolio companies and developing a more detailed understanding of cost management and transformation and a broader range of performance improvement actions to drive up returns.