The value of private equity deals in China has remained flat year-on-year, with about $9 billion invested during the first halves of both 2013 and 2012, according to figures from PricewaterhouseCoopers.
The volume of exits in China was down to 62 during the first half of 2013 from 115 during the same period the year before.
Exits by IPO have almost stalled completely, due to the continued closure of China’s stock markets by the China Securities and Regulatory Commission. Firms exited six portfolio companies via a listing during the first half of this year, a 90.6 percent decline from the 64 IPOs that were completed last year during the same period.
Fundraising, too, has disappointed, with the number of new funds declining by 46 percent year-on-year to just 50 from 77. The amount raised by both RMB and US dollar investors together declined to just $11 billion during the first half of 2013 from $21.6 billion during the first half of 2012.
David Brown, head of China private equity at PwC, said at a press briefing in Hong Kong this week that the fundraising figures were expected as GPs focus on exiting their investments and deploying a “huge overhang” in dry powder, which Bain & Company estimated was at $59 billion in China at the end of 2012.
Nevertheless, figures did show that the number of buyouts completed by private equity firms in China has increased. The volume of buyouts rose by 91 percent during the first half of 2013, jumping to 21 from just 11 during the same period in 2012, according to PwC.
The figures show an anticipated trend of more buyout deals in China, as pre-IPO plays and growth capital investment become less attractive. The number of growth capital deals in China decreased by 34 percent year-on-year, to 83 deals compared to 126.
It will be difficult to find enough, but there are more opportunities out there. If you look at our own business, we do have noticeably more of that kind of deal in the pipeline.
David Brown, head of China private equity, PricewaterhouseCoopers
“[This] has been strongly influenced by the difficulty in exiting growth capital investments,” Brown explained.
“To exit by IPO is more or less the only option because [in growth capital deals] you only have a minority stake, and we currently have a situation where the IPO markets are not working and the backlog is too big for even functioning IPO markets to handle.”
However, despite the uptick in buyout deals largely driven by succession issues and aging entrepreneurs in China, the number of control deals available will not necessarily be enough to satisfy GPs’ appetite.
“It will be difficult to find enough, but there are more opportunities out there. If we look at our [clients' activity], we do have noticeably more of that kind of deal in the pipeline. But it is difficult to find buyouts – the number is still quite small, so it is definitely an issue,” Brown admitted.
Many firms have had to go abroad to find China-focused buyouts. Recent control deals in China have often involved de-listing a company from US stock exchanges alongside the founder of the company.
This week, Hony Capital backed the privatisation of Chinese pharmaceutical company Simcere in a deal worth $495 million, Private Equity International reported earlier. The deal had similarities to CITIC Capital's take-private of Asia-Info Linkage in an $890 million deal in May; and The Carlyle Group's $688 million deal to privatise New York Stock Exchange-listed 7 Days Group.