EQT backs Modern Metal in China

The Nordic firm's second China fund, which is roughly 50% deployed, has inked its sixth deal.

EQT Partners, a private equity firm with operations in Northern Europe and Greater China, has bought a 30 percent stake in Modern Metal & Precision, a Chinese manufacturer of aluminum die casting.

The firm declined to comment on the size of the transaction.

Founded in 1969, Modern Metal supplies engineered aluminum die casting products in the global automotive, climate control and industrial automation markets. The company currently operates two plants in Dongguan, China, and is planning to use EQT's investment to build a third plant in the country.

The investment was made from EQT Greater China II, a $535 million vehicle that closed in January 2007. The deal followed a 65 percent acquisition in bakery chain Qinyuan in Chongqing in early November.

The fund, which is focused primarily on mid-market buyout and control investments based in or connected with China, Hong Kong and Taiwan, is currently about 50 percent deployed, according to Martin Mok, a Hong Kong-based EQT partner. The firm is also expecting to close another deal before Christmas, Mok added.

Previous investments made out of the fund include the acquisition of a 40 percent stake in Japan Home Centre, a discount house-ware retail chain based in Hong Kong; a 48 percent stake in LaoBaiXing, a Chinese discount pharmacy store chain; a 99 percent stake in PSM International, which provides fastening products to the automotive, mobile phone, notebook PC and general industries; and a 79 percent stake in Yin Rong, a Chinese juice manufacturer.

China has been a market dominated by growth capital investment and minority stakes, but Mok said making controlling investments in Chinese companies is becoming easier.

“If you get down to know the business and the founders, they can be done,” Mok told PEI Asia in a telephone interview.

People know that you need to institutionalise management process, you need to institutionalise the board and you need to have a proper continuity in corporate governance beyond one man.

Martin Mok

Mok said that because growth capital investment can only add a limited amount of value, Chinese entrepreneurs have come to understand they need some “genuine” help in the form of operational expertise in addition to money.

“People know that you need to institutionalise management process, you need to institutionalise the board and you need to have a proper continuity in corporate governance beyond one man,” said Mok.

EQT has offices in Copenhagen, Frankfurt, Helsinki, Hong Kong, London, Munich, New York, Oslo, Shanghai, Stockholm, Warsaw and Zurich.