Hong Kong-based private equity firm China Everbright (CEL) and venture capital firm Walden International are seeking $500 million for their new private equity vehicle focused on the semiconductor industry, a move in line with the aggressive expansion into the sector by its peers and Chinese corporates.
The pair will co-manage the vehicle but CEL will anchor the fund, named Walden CEL Global Fund I, with a $100 million commitment.
The firms expect to have a diversified investor base “because of the sensitivity of the industry,” a CEL spokesperson said. Limited partners in CEL’s previous funds include Focus Media, Wuxi Guolian Development Group and University of Oklahoma Foundation, PEI data show.
Robert Yung, a partner at Walden International, added: “We are going to focus on other institutional investors who can offer strategic partnerships that will bring value other than just capital. Traditionally our investor base has been purely strategics, such as the top 50 firms in the semiconductor industry like Cisco, NTK Technologies and Taiwan Semiconductor Manufacturing.”
The firms expect to hold a first close of between $200 million and $250 million by year-end.
Capital raised for the fund will be used to back companies along the semiconductor and electronic information supply chain including but not limited to microchips, artificial intelligence, as well as hardware and software integration. The pair has three deals in the pipeline worth about $30 million, including a Texas-headquartered chipmaker that will list on the New York Stock Exchange next month.
China-focused private equity firms have been highly acquisitive of high-tech chip companies as the country seeks a larger role in the global semiconductor industry. Total market value of the global semiconductor industry reached $338.9 billion in 2016, of which $150 billion came from Chinese companies, according to the Semiconductor Industry Association.
Firms who have struck deals in this space include Beijing Jianguang Asset Management and Wise Road Capital for their $2.75 billion acquisition of Dutch company NXP Semiconductors as well as Beijing Shanhai Capital for its $500 million takeover of Santa Clara, California-based Analogix Semiconductor.
The US and European Union are, however, increasingly cautious about Chinese takeovers of semiconductor companies and recent deals have been met with more scrutiny or even blocked over unspecified national security issues. In October last year, Chinese investor Fujian Grand Chip Investment Fund was supposed to have sealed a deal with German semiconductor equipment manufacturer Aixtron but was abruptly called off by the German Economic Ministry over national security concerns.
Last month, US president Trump blocked Chinese private equity firm Canyon Bridge Capital Partners in its $1.3 billion acquisition of Hillsboro, Oregon-based Lattice Semiconductor, saying the deal “threatens to impair the national security of the US”.
CEL is a subsidiary of the state-owned conglomerate China Everbright Group and manages HK$106.6 billion ($13.7 billion; €11.6 billion) across private equity, venture capital, mezzanine and fixed income.