Not many buyouts have been done in China, but if judged by the number of recent visits to the country by US private equity market participants, interest is red-hot.
In November, for example, Ohio-based private equity firm Blue Point Capital Partners, which recently opened an office in Shanghai, brought a group of limited partners to China for a tour of the opportunities there.
Another US group, Los Angeles-based middle market investment bank Barrington Associates, is also keen to demonstrate that it knows its way around the country. In September, Jack Chen, the chairman of affiliate Barrington Asia Pacific, led a delegation of US general partners on a five-day tour of Chinese cities to meet with local government officials, business owners and reporters. The GPs in tow were Eric Bacon of Linsalata Capital Partners; Leonard Harlan of Castle Harlan; David Hawkins of Code Hennessy & Simmons; Tony Ignaczak of Quad-C Management; and William Shutzer of Evercore Partners. Of the five, only Bacon had ever been to China before, and that was for a single day.
Chen says he was pleased but not surprised that this group of GPs would be so eager to take the trip: “Many of these guys have portfolio companies that source from China. When they got back, almost every one of them expressed interest in doing something in China.”
Chen, who was born in Shanghai but has been living in the US since 1986, says his tour group was astonished to see the reception provided to Western businessmen in China. “I emailed ahead, telling my contacts that these guys represent $7.5 billion,” says Chen. “A red carpet met us wherever we went.”
What became clear is that the Chinese authorities take economic development very seriously. At one point, the GPs were amazed to see a police squad show up to escort their bus through a Hangzhou traffic jam. Says Chen: “They said to me, ‘Jack, look at all those bicycles stopped just for us.’”
QUOTABLE
“If [the current bubble bursts], the LBO boom and bust that Michael Milken led in the 1980s could end up looking like a dress rehearsal for the mess to come.”
From a New York Times article published in November titled “The great global buyout bubble”. According to the gray old lady, buyout firms have little to look forward to.
There's no question this is going to end badly for some. It's almost a classic boom-bust cycle. When you see a big boom, people see the returns, go rushing in, stuff more money in than can be dealt with. Suddenly, something will happen that makes people say: ‘Oh, my God! Look at the leverage we've got on these things. Isn't this way too risky? Shouldn't we pull back?’ And then the question becomes: Does it crash like a rock or is there an adjustment down over time?”
From Colin Blaydon, a professor at the Tuck School of Management at Dartmouth and the dean emeritus of its Center for Private Equity and Entrepreneurship, in the same New York Times article.
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