China fund makes splash with $110m debut deal

Former Och-Ziff China head Frank Yu's nascent firm beat 20 bidders including TPG to take control of one of China's largest water treatment companies.

Themes Investment Management, a China-focused private equity firm launched earlier this year, has led a $110 million all-equity deal to acquire 70 percent of Standard Water, a water treatment company headquartered in Beijing, according to a source close to the transaction. The investment is the firm's first from its maiden fund, Themes Investment Partners II.
In a statement, Themes confirmed that it had led a deal worth more than $100 million for a “majority” interest in the company. 
Themes, headed by CEO Frank Yu, former head of China at Och-Ziff Capital Management Group, beat out 20 other bidders including TPG Capital and a number of strategic buyers in order to secure the deal, according to the source. Themes' principal co-investor on the deal is a “quasi-sovereign investment group in China”, the source added.
Some 30 percent of the equity was purchased from the Standard Chartered IL&FS Asia Infrastructure Growth Fund, which had invested in Standard Water in 2008, according to the PEI Asia archive. One other exiting shareholder is Singapore-listed infrastructure group CNA Group. The names of the other divesting shareholders have not been disclosed. Post-transaction, Standard Water's management will hold the remaining 30 percent of equity.
In a statement, Yu said: “This is a complex transaction encompassing special situation, buyout and growth capital investments in one. 
“In China, wastewater treatment is a policy imperative and a proven, attractive business model. It is a defensible business enjoying a steady recurring cashflow over a 25-year period, but also coupled with fast growth driven by pressing needs in China.”
In an interview with PEI Asia Yu described the investment as being “as private equity as you can get” and said he would likely anticipate an exit through IPO in 2012. He said post-investment, the aim within the next 12 months was to increase the number of water treatment plants across China from 30 to over 50.
Yu declined to comment further on the transaction or on the firm's fundraising efforts, however, he said the investment in Standard Water was in line with Themes' core sector focus of environmental businesses, agribusiness and financial services.
Yu himself brings a great deal of experience in the financial services sector in China. Prior to joining Och-Ziff in 2007 he was a managing director in Goldman Sachs' Financial Institutions Group for eight years, where he focused primarily of the restructuring and IPOs of prominent Chinese financial institutions.
Among these were the restructurings and IPOs of PetroChina; Bank of China (Hong Kong); and Bank of Communications. 
He also advised The Carlyle Group on its investment in China Pacific Insurance Group, which is anticipated to be one of the most profitable private equity deals in China when the firm exits the now Hong Kong-listed company. Carlyle had invested a total of $800 million in stages for a 17.3 percent stake by the time the company went to IPO at the end of 2009.
Themes was formed at the end of last year following Yu's departure from Och-Ziff. It launched its first fund earlier this year with a $500 million target, according to media reports at the time. 
According to the source close to the Standard Water transaction, the firm is also in advanced talks around a potential next deal, said to be worth up to $700 million.