Take-private targets trending smaller(2)

De-listing undervalued Chinese companies from foreign exchanges is expected to continue into 2014, with most of the activity in the mid-market, according to Carlyle-owned Duff & Phelps.

Mid-market privatisations involving Chinese firms listed on offshore exchanges are expected to be robust compared to the increasingly fewer large take-private deals, according to David Lu managing director and head of Duff & Phelps investment banking practice in China.

“We continue to see private equity firms circling around undervalued publicly-listed Chinese companies to see if there’s opportunity for them to participate,” Lu said. “Smaller companies are still looking for a way to privatise and are in active discussions with private equity firms.”

He added that due to the smaller size of the targets, RMB funds will likely participate in privatisation opportunities, not necessarily US dollar funds.

David Lu,
managing director
 and China head of
investment banking,
Duff & Phelps.

Many of the larger companies have been plucked by private equity firms already, he said. 

“There’s a lot of money competing for few larger deals. So to go after the large deals, each firm will need to differentiate themselves by expertise.” 

As an example, he mentioned a deal earlier this month that involved the Blackstone Group leading the $625 million privatisation of NASDAQ-listed Pactera Technology, an IT services provider based in China. 
“Blackstone has knowledge of that specific service industry and takes a different view from other private equity firms,” he said. 

Earlier this month, Lu was appointed to the position, which is based in Shanghai. He previously served as head of Asia investment banking at Cowen Group. 

According to a statement from Duff & Phelps, Lu will focus on providing advisory services related to mergers & acquisitions, fairness opinions, going-private transactions, private market capital raising transactions and financial restructuring in China.

Lu also expects to work on cross-border M&A. “We don’t believe [cross-border] deal volume and transaction size is going to be phenomenal, but at the same time we’ll see a lot more smaller deals in the $50 million to $100 million range done without catching the headlines.” 

New York-based Duff & Phelps is a global financial advisory and investment banking firm. In China it has 25 professionals.

In April this year, Duff & Phelps was bought by a consortium led by The Carlyle Group and included Connecticut-based Stone Point Capital, Swiss bank Pictet & Cie, and Edmond de Rothschild Group in an all-cash transaction valued at about $665.5 million, Private Equity International reported earlier.