Why is Terra Firma opening in Beijing to support portfolio companies?
GH: We are firm believers in adding value in what we do. We don’t believe that being a financial investor and just having money is of huge benefit. Terra Firma has a very successful track record of creating value by transforming businesses that are rich in assets and are in what we call ‘essential industries’ like agriculture, energy, real estate, transport and logistics. These industries are of particular importance in China. We therefore have a collection of portfolio businesses that we think could benefit from opportunities in China and with Chinese partners.
And will Beijing-based executives be local Chinese, or Western educated individuals?
BS: Our strategy is a very localised strategy. I think it is important to have locally trained employees to operate in China, especially because a lot of the focus right now is either on building relationships with large state-owned enterprises for potential outbound investments or for business development opportunities for our business in China. Both require very strong local knowledge.
Would you consider making investments directly into Chinese companies?
GH: Yes, but we are aware of the need to develop deep relationships and partnerships first. We don’t want to be doing business just simply because we’ve got the money. We want to do business because we have developed a relationship that we can see real potential in. We see this as a long-term activity – 20, 30 years, not 2 or 3 years. In the long-term China should be as important a part of our business as anywhere outside of Europe.
Does your current fund, the third fund, have the mandate to invest directly in China or will future funds allow for this?
GH: Our funds have always allowed us to put 30 percent outside Western Europe, so we have the capacity to invest in China if we felt it was appropriate. Right now our focus is very much on how our companies can work with Chinese companies and develop partnerships and on developing partnerships over the long-term. Some of the partnerships we develop over the long-term could well lead to investments, but it is not a short term activity.
BS: The types of deals that we do are large – often $100 million plus, and we normally require control. Those kinds of deals are very scarce in China. A lot of the possibilities that our portfolio companies might consider are about the size that most of the other PE firms are doing in China.
The full article is available to premium subscribers of Private Equity International in the October issue.