Private equity-backed Chinese companies outperform peers

Companies that received private equity investments between 2002 and 2006 outperformed their listed counterparts on most indicators, according to a recent study.

Private equity-backed companies in China register a higher growth in revenue and profits than their listed equivalents, a study has indicated.

They also spend more on research and development and record larger increases in both the total number of people employed and average gross salaries paid to employees, according to the survey conducted by the European Union Chamber of Commerce in China in partnership with consulting firm Bain & Company.

The research covered the period from 2002 to 2008 and included company data from the recipients of more than 50 percent of all private equity investments made between 2002 and 2006 by value.

Within that timeframe, it found companies receiving private equity funding achieved a 3 percent higher revenue growth rate than listed companies. They also posted a 39 percent average increase in profits compounded annually as compared with a 25 percent increase reported by listed companies.

Meanwhile, total employment at private equity-backed companies increased by 16 percent over the survey period, as compared with an 8 percent increase at publicly listed companies. Gross salary growth rates at companies that received private equity funding outperformed those of listed companies by 7 percentage points.

As a percentage of revenue, spending on research and development at private equity-backed companies was more than 2.5 times that of publicly listed companies.

The survey also found that private equity investments in China were not confined to the coastal regions which have seen large inflows of capital – rather, 42 percent of private equity funding was directed to companies headquartered in inland provinces of the country.

The study examined the performance of 100 private equity-backed companies that received at least $20 million in financing from private equity funds between 2002 and 2006 and compared their performance with 2,424 Chinese companies listed on domestic and foreign exchanges in Shanghai, Shenzhen, Hong Kong, European and American exchanges.