Sun Capital weighs opportunities in China

The firm has two offices in China, but legal issues and a lack of financing make it hard to source deals in the country, says co-CEO Rodger Krouse.

While many private equity firms will pursue investment opportunities in China in 2011, the country’s legal framework and lack of available financing still present significant challenges for finding deals.

“For us, China is more a place where our companies produce,” said Rodger Krouse, co-chief executive officer of Sun Capital Partners. “Ultimately it’s going to be a priority for us in a big sense, in terms of selling to consumers over there and also doing deals over there. The problem is the legal system and financing infrastructure, which are not as well established, and that’s what we really need.”

Krouse was speaking at the Dow Jones Private Equity Analyst Outlook conference in New York this week. Sun Capital is primarily focused on North America and Europe, but the firm has offices in Shanghai and Shenzhen. “[The offices] help our mid-market companies better source what they sell here,” Krouse said.

Over the past few years, private equity firms have increasingly looked to China for investment opportunities. Carlyle and Blackstone, both of which have RMB-denominated funds, each collected roughly half of their RMB fund targets in July 2010. Kohlberg Kravis Roberts is currently raising capital for a fund focused solely on Chinese opportunities with a target “around” $1 billion, a source told sister publication PEI Asia in an earlier interview.

Meanwhile, other private equity firms have opened offices in China to get a better foothold in the burgeoning country.

Sun Capital, which did the majority of its deals in the US in 2010, expects to be busy again in 2011. “We had our second-most active deal year for us in terms of new deals, and we expect 2011 to be similar to that,” Krouse said.