Asia’s Private Equity News Source avcj.com May 19 2015 Volume 28 Number 18 EDITOR’S VIEWPOINT Changes in the wind for China private equity? Page 3 NEWS China Renaissance, EMR, JIS, Macquarie, Mizuho, PAG, Primavera, SoftBank, TPG, Yunfeng Page 5 INDUSTRY Q&A Hony Capital’s John Zhao talks China buyouts Page 17 FOCUS How Shenzhen is leading the hardware revolution Page 23 CONTRIBUTED ARTICLE Stuck in the middle Bain & Company on value creation strategies Are investors missing out on opportunities in China’s middle-market? Page 9 Page 27 FOCUS ANALYSIS The difficult patient Creatures of legend GPs challenged by hospital investments Page 13 Investors pursue China’s next tech giant Page 19 PRE-CONFERENCE ISSUE AVCJ PRIVATE EQUITY AND VENTURE CAPITAL FORUM CHINA 2015 Anything is possible if you work with the right partner Unlocking liquidity for private equity investors www.collercapital.com London, New York, Hong Kong EDITOR’S VIEWPOINT [email protected] Managing Editor Tim Burroughs (852) 3411 4909 Staff Writers Andrew Woodman (852) 3411 4852 Winnie Liu (852) 3411 4907 Changing China Holden Mann (852) 3411 4964 Creative Director Dicky Tang THE PHRASE “NEW NORMAL” HAS BEEN conferences – including AVCJ’s own events – Designers used so frequently with regard to China’s often followed by observations that China private Catherine Chau, Edith Leung, Mansfield Hor, Tony Chow economy in recent years that one wonders when equity has lost its shine in the eyes of some LPs, it might reach its sell-by date. last year’s uptick in exits notwithstanding. Senior Research Manager In a macroeconomic context, China’s new For example, I was recently in Washington D.C. Helen Lee normal is incremental stopping points on the for the emerging markets-focused Global Private Research Associates Herbert Yum, Jason Chong, path from fixed-asset investment and export- Equity Conference organized by the International Kaho Mak driven growth to a reliance on services and Finance Corporation and our friends at EMPEA. Senior Marketing Manager domestic consumption. But the phrase could A few years ago, this event was full of delegates Sally Yip equally be applied to the country’s private from China but the 2015 iteration featured just a Circulation Administrator equity industry. Changes in the economy and handful. By contrast, there were a huge number Prudence Lau demographics signal a new genre of deals. of Indian delegates. Subscription Sales Executive So far in 2015 investment is on a par with the Indeed, some attendees speculated aloud Jade Chan past two years but there is been a significant that China has fallen from favor. It is difficult to Manager, Delegate Sales shift in the nature of deal flow. Information draw definitive conclusions – if anything, as the Pauline Chen technology has emerged as the driving global LP community becomes more familiar Director, Business Development force with substantial transactions involving with China, people forming their own opinions Darryl Mag entertainment listings and group-buying site rather than going with the herd. Overall, there Manager, Business Development Dianping ($850 million) and mobile-based taxi- still seems to be strong interest, based on the Anil Nathani, Samuel Lau booking platform Kuadi Dache ($600 million, conversations I had on my trip. Sales Coordinator prior to its merger with rival service Didi Dache). An interesting development is that a number Debbie Koo There is a similar dislocation in fundraising, of firms are looking at new ways of addressing Conference Managers with the government-linked RMB30 billion ($4.8 the China market. A senior partner of a top US- Jonathon Cohen, Sarah Doyle, billion) Green Ecological Silk Road Investment based buyout house told us about a partnership Conference Administrator Fund dominating the rankings. It threatens to his firm has formed with a successful Chinese Amelie Poon obscure true institutional activity, with CITIC renminbi-only manager that wants to expand Conference Coordinator Fiona Keung, Jovial Chung Private Equity and Sequoia Capital raising their into the US dollar fund space. latest vehicles. Banyan Capital, a spin-out from The new normal is not necessarily a concept Publishing Director IDG Capital Partners, also made a sizeable to be feared. It emblematic of a market that Allen Lee contribution, closing its second fund at $362 is undergoing a significant transition and the million and then raising a $100 million co opportunities it presents are different from what -investment fund. It is worth noting that all three we’ve seen in the past. Incisive Media of these GPs are very active in the technology Unit 1401 Devon House, Taikoo Place space. 979 King’s Road, Quarry Bay, Hong Kong The new normal also preoccupies global T. (852) 3411-4900 investors, who consider both the macroeconomic Allen Lee F. (852) 3411-4999 E. [email protected] ramifications as well as the impact on private Publishing Director URL. avcj.com equity. It is a recurring theme at industry Asian Venture Capital Journal Beijing Representative Office No.1-2-(2)-B-A554, 1st Building, No.66 Nanshatan, Chaoyang District, Beijing, Largest China PE deals, 2015 year to date People’s Republic of China T. (86) 10 5869 6203 Date Size (US$m) Financing Stage Investee F. (86) 10 5869 6205 Apr-15 850.0 Growth Dianping.com E. [email protected] May-15 668.4 Buyout Jiangxi ZhongJiang Group Jan-15 600.0 Growth Kuaidi Dache The Publisher reserves all rights herein. Reproduction in whole or Jan-15 484.3 PIPE Guangzhou Baiyunshan Pharmaceutical in part is permitted only with the written consent of Mar-15 483.7 Growth Lufax AVCJ Group Limited. ISSN 1817-1648 Copyright © 2015 Jan-15 350.0 Growth Ele.me Mar-15 309.1 Growth GF Securities Mar-15 254.3 PIPE China Traditional Chinese Medicine Apr-15 209.9 PIPE Shanghai Bailian Group Apr-15 200.0 Growth Panshi Information Technology Source: AVCJ Research Number 18 | Volume 28 | May 19 2015 | avcj.com 3 Light. Fast. Flexible. Your fund agreement works for you, not the other way around. A lot of law firms don’t get that. They come at fund formation from a tax mindset. They create agreements that are too long, too convoluted – and about as user-friendly as the IRS code. That’s not us. Our fund team is more MBA than CPA. When an investment opportunity arises, you need to make decisions. Our agreements capture your business deal in a way which is easy to understand. They are written to give you clear guidance without complicating the issues. And to be interpreted without needing your lawyers and accountants. Our competitors’ fund agreements average 112 pages. * Ours average 56. Your fund agreement is something you’ll live with for years to come. Let us save you significant time and money. Do yourself and your investors a favor. Go Cooley. *Based on a review of various venture capital fund agreements drafted by our primary competitors conducted January 2014. © 2014 Cooley LLP IFC - Tower 2, Level 35, Unit 3510, 8 Century Avenue, Pudong New Area, Shanghai, 200120, China +86 21 6030 0600 NEWS GLOBAL PAG targets $3b for second GREATER CHINA Asia fund TPG, PAG-owned DTZ PAG Asia Capital is looking to raise $3 billion in its Yunfeng, Wanda back second pan-regional fund. A hard cap has yet to agrees $2b bolt-on be set for the new vehicle. The first investment is sports channel DTZ, a property services provider owned by TPG likely to be South Korea-based Young Toys, which Yunfeng Capital and conglomerate Dalian Wanda Capital, PAG Asia Capital and co-investor Ontario Headland Capital Partners is understood to have Group have led a Series A round worth RMB800 Teachers’ Pension Plan, will buy industry peer agreed to sell for around $200 million. million ($129 million) for sports channel LeTV Cushman & Wakefield for $2 billion. Investment PAG targets buyouts, control deals and Sports. Shenzhen Fortune Link and Prometheus firm Exor, n investment company controlled by structured investments in sectors that leverage Capital also participated alongside several the Agnelli family, founders of automaker Fiat, private consumption, including retail, food and high-net-wealth individuals. The financing round will receive $1.28 billion for its 75% holding in values the company at RMB2.9 billion. Cushman & Wakefield. The combined entity will be one of the largest real estate services Mizuho, China Merchants companies in the world. launch $250m growth fund Japan’s Mizuho Securities and China Merchants ASIA PACIFIC Group have reached a $20 million first close on their China-focused growth equity fund, which is Neuberger Berman looking to raise $200-250 million. Contributions came from MHSC, CMC, the Japan Bank for appoints Asia PE head International Cooperation (JBIC), and several Kent Chen, a former manager at the Hong Kong undisclosed corporations. Monetary Authority (HKMA), has been appointed managing director at Neuberger Berman and beverages, and healthcare. It typically invests at Greenland to take majority head of the firm’s Asia Pacific private equity least $100 million per deal. The firm’s first fund efforts. Chen will be based in Hong Kong. His launched in late 2010 and closed at $2.5 billion stake in Rundong duties will include advising local clients and in 2012. LPs include California Public Employees’ China’s Greenland Holding Group will buy a implementing the firm’s investment strategies in Retirement System and California State Teachers’ controlling stake in KKR-backed Chinese car the region. Chen has worked at the HKMA since Retirement System. dealership Rundong Auto for HKD1.55 billion 1998. His positions within the organization have Seven of the nine portfolio companies in Fund ($200 million). The firm will raise its current 3% included deputy chief representative at the New I are China-based, and there have been three stake to 30% through purchasing newly issued York office and advisor to the IMF’s executive exits, resulting in distributions of about $1 billion.