Asia’s News Source avcj.com January 12 2016 Volume 29 Number 02

EDITOR’S VIEWPOINT Dick Smith casts shadow on PE-backed IPOs Page 3 NEWS Baring Asia, CX Partners, CyberAgent, Eight Roads, Ekuinas, L Capital, Lightbox, MVP Capital, Orion, PAG, , Sequoia, SIG, TA, Tata Capital, Unitas Page 4 DEAL OF THE WEEK IMM boosts Korean media synergies Page 12 AGIC secures $1b China cross-border acquisition Page 13 PROFILE Permanent capital? Garena’s Nick Nash, GP turned investee Regulators intervene as Chinese GPs target New Third Board listings Page 7 Page 14

ANALYSIS DEAL OF THE WEEK

Uninspiring ending Credit at the margin 4Q analysis: 2015 staggers to the finish Page 10 Olympus supports MFI’s Asia expansion Page 12 15th Annual Private Equity & Venture Forum

9-10China March • China World Summit 2016 Wing, Beijing GLOBAL PERSPECTIVE, LOCAL OPPORTUNITY AVCJ China Forum: Private equity in turbulent times Confirmed Speakers Include:

Bonnie Lo Sean Lu Olivia Ouyang Partner Managing Director Director NEWQUEST ; ONTARIO TEACHERS' SAVE CAPITAL PARTNERS China Head, CARLYLE PLAN ASIA GROWTH PARTNERS US$400 David Wei Michael Weiss Eric Xin book before Chairman and Partner Senior Managing Founding Partner SAILING CAPITAL Director, China Private 29 JAN VISION KNIGHT ADVISORS (HONG Equity CAPITAL KONG) LIMITED CITIC CAPITAL

Edith Yeung Jason Zhao Patrick Zhong Partner Mobile Head of Private Equity Senior Managing Director Collective and Head of Global 500 STARTUPS CHINA POST LIFE & Strategies FOSUN GROUP And many more...

Keep up-to-date with confirmed speakers at avcjchina.com

2015 Forum Highlights:

335 46 LPs 100+ 18 8 215 Participants Speakers Limited Countries Unique networking Partners Represented opportunities Represented

Europe Other - Asia 4% 4% U.S.A. Hong Kong Principal/VP/ 3% China 18% LPs GPs 33% Associates 66%

Managing Director/ South Korea 38% Partner/ CFO/COO 3% Director / GM / Singapore 1 : 1 18% Chief Representative 2%

Attended by 100+ LP Chairman / CEO / BY COUNTRY BY LP-GP RATIO LP-GP 11% Managing Partner TITLE BY and 46+Speakers from Over 335 participants from China and overseas 18 countries and 215 companies.

Registration enquires: Pauline Chen Sponsorship enquires: Samuel Lau T: +852 2158 9655 T: +852 2158 9659 Enquiry E: [email protected] E: [email protected]

Co-Sponsors VC Legal Sponsor

Join our WeChat for Join your peers latest AVCJ Feeds Simultaneous translation is available 关注我们的微信平台， 论坛会以普通话 和英语进行 avcjchina.com #avcjchina 了解AVCJ最新动态 15th Annual Private Equity & Venture Forum EDITOR’S VIEWPOINT [email protected] 9-10China March • China World Summit 2016 Wing, Beijing GLOBAL PERSPECTIVE, LOCAL OPPORTUNITY

Managing Editor AVCJ China Forum: Private equity in turbulent times Tim Burroughs (852) 2158 9661 Crisis of confidence? Associate Editor Winnie Liu (852) 2158 9663 Confirmed Speakers Include: Staff Writer Holden Mann (852) 2158 9646 Bonnie Lo Sean Lu Olivia Ouyang Design Partner Managing Director Director AS FAR AS LPS ARE CONCERNED, DICK but there are already worrying ramifications for Edith Leung, Mansfield Hor NEWQUEST THE CARLYLE GROUP; ONTARIO TEACHERS' SAVE Smith Electronics is a success story. Anchorage private equity as a whole. No one has accused CAPITAL PARTNERS China Head, CARLYLE PENSION PLAN Events ASIA Partners acquired the underperforming the GP of illegal activity so the retail PARTNERS US$400 Australian from Woolworths in 2012 who lost out did so at their own risk. However, George Sengulovski, for A$20 million ($14 million), plus a of the question is whether any PE-backed offering Jessie Chan, Jonathon Cohen, David Wei Michael Weiss Eric Xin book before any upside resulting from the PE firm’s exit (this in Australia should be taken at face value. Sarah Doyle, Amelie Poon, Fiona Keung, Chairman and Partner Senior Managing right was bought out by Dick Smith for A$74 The last authoritative study of the Jovial Chung, Founding Partner SAILING CAPITAL Director, China Private 29 JAN million). Following an IPO in late 2013, Anchorage performance of PE-backed IPOs was carried out VISION KNIGHT ADVISORS (HONG Equity Marketing CAPITAL KONG) LIMITED CITIC CAPITAL completed its exit in September 2014 with by Rothschild, with the Australian Private Equity estimated total proceeds of around $450 million. & Association, and published in Agrina Sandri, Priscilla Chu, The turnaround from distressed asset to early 2015. It analyzed the share price returns for Yasna Mostofi Edith Yeung Jason Zhao Patrick Zhong a valuation on listing of A$520.3 million is 49 IPOs – 23 PE-backed and 26 non-PE backed – Research Partner Mobile Head of Private Equity Senior Managing Director detailed on the PE firm’s website. A new CEO on the Australian bourse in 2013 and 2014 with Helen Lee, Herbert Yum, Collective investment and Head of Global was appointed; new key performance indicator an offer size of A$100 million or more. Jason Chong, 500 STARTUPS CHINA POST LIFE Investments & Strategies Kaho Mak, Tim Wong, INSURANCE FOSUN GROUP And many more... (KPI) dashboards were linked to staff incentives; The PE-backed IPOs since 2013 had achieved training and recruitment were improved; new an average return of 10.3% and a weighted- Sales relationships were developed with suppliers average return of 16.9%, outperforming non-PE Anil Nathani, Keep up-to-date with confirmed speakers at avcjchina.com and existing agreements renegotiated; the backed IPOs by 3% and 4% respectively. In Darryl Mag, Debbie Koo, marketing strategy and website were revised; 2014, non-PE backed IPOs outperformed PE Samuel Lau, 2015 Forum Highlights: and old and obsolete was cleared, and new backed IPOs on an average basis by 7% and on a Pauline Chen stock management and ordering practices were weighted-average basis by 5%. All the IPOs had Subscriptions phased in. The store network was also expanded also significantly outperformed the benchmark Jade Chan, Prudence Lau, 335 46 LPs 100+ 18 8 215 under new brands and formats. Small Industrials Index for 2013 and 2014. Sally Yip Participants Speakers Limited Countries Unique networking Companies Net profit had slipped from A$13.2 million in In 75% of cases, PE firms retained a stake in Partners Represented opportunities Represented Publishing Director 2012 to A$6.7 million in 2013, with EBITDA falling the business post-IPO, with an average holding Allen Lee Europe Other - Asia from A$32.6 million to A$23.4 million, and sales of over 20%, to ensure an alignment of interests 4% 4% declining from A$1.37 billion to A$1.28 billion. between incoming and existing shareholders. U.S.A. Hong Kong Principal/VP/ 3% China 18% In 2014, net profit rebounded to A$42.1 million, Clearly, not every PE-backed offering is LPs GPs 33% Associates 66% with EBITDA reaching A$74.4 million and sales a time bomb, and the minority of situations Hong Kong Headquarter Managing Director/ South Korea coming to A$1.22 billion. in which problems are encountered attract Suite 1602-6 38% Partner/ CFO/COO 3% Just over a year after Anchorage sold its disproportionate attention. A couple of years ago Grand Millennium Plaza Director / GM / Singapore 181 Queen’s Road 1 : 1 18% Chief Representative 2% remaining shares, Dick Smith has entered at an AVCJ Forum, several industry participants Central Hong Kong receivership and the unofficial post mortem said it was irresponsible for investors to make a T. (852) 2158 9700 Chairman / CEO / Attended by 100+ LP is underway. The ’s founder – who full exit on IPO. It is, however, worth discussion as F. (852) 2158 9701 BY COUNTRY BY LP-GP RATIO LP-GP 11% Managing Partner TITLE BY Over 335 participants from E. [email protected] and 46+Speakers from sold the business to Woolworths in 1982 – has to whether the typical holding period – GPs often China and overseas 18 countries and 215 companies. URL. avcj.com blamed Anchorage and politicians are calling for exit once the 12-month earnings forecast period an independent inquiry into the GP’s behavior. in the prospectus expires – is enough. Beijing Representative Office Registration enquires: Pauline Chen Sponsorship enquires: Samuel Lau A more detailed critique of the investment In several other Asian markets the lock-up No.1-2-(2)-B-A554, 1st Building, No.66 Nanshatan, T: +852 2158 9655 T: +852 2158 9659 came in late October when Forager Funds periods are longer, with PE investors in China- Enquiry Chaoyang District, Beijing, E: [email protected] E: [email protected] Management concluded that the PE firm had listed companies unable to sell their last tranche People’s Republic of China done all it could to dress up the business for the of shares for three years. Admittedly, this is a T. (86) 10 5869 6203 F. (86) 10 5869 6205 IPO at the expense of long-term sustainability. It bugbear for many China investors, but if there E. [email protected] Co-Sponsors VC Legal Sponsor claimed that Anchorage marked down the assets really is a crisis of confidence in PE-backed IPOs as much as possible as part of the acquisition in Australia – and we don’t yet know if this is and substantially reduced inventory so that cash the case – perhaps special action is required, The Publisher reserves all rights herein. Reproduction in whole or flow and earnings were artificially inflated. Two voluntary or otherwise. in part is permitted only with the written consent of AVCJ Group Limited. years later, new inventory had been purchased, ISSN 1817-1648 Copyright © 2016 cash flow turned negative, more debt was taken on, accounting provisions were tapering off, and financial performance suffered. Tim Burroughs A Mergermarket Group company It remains to be seen to what extent Managing Editor Anchorage is responsible for Dick Smith’s demise, Asian Venture Capital Journal Join our WeChat for Join your peers latest AVCJ Feeds Simultaneous translation is available 关注我们的微信平台， 3 论坛会以普通话 和英语进行 avcjchina.com #avcjchina 了解AVCJ最新动态 Number 02 | Volume 29 | January 12 2016 | avcj.com NEWS

PAG closes second Asia for iKang Healthcare Group in response to a ASIA PACIFIC rival consortium led by the company’s founder fund at $3.66b bringing in a string of heavyweight investors. L Capital to merge with US- PAG Asia Capital has reached a first and final close Meinian said the consortium is willing to pay on its second fund at $3.66 billion. The vehicle, $25.00 per share, valuing iKang at over $1.6 billion. based Catterton which had an initial target of $3 billion, spent less L Capital, a GP sponsored by luxury goods giant than eight months in the market. The GP, which Qufenqi raises new round, LVMH, will merge with consumer-focused GP is led by Weijian Shan (pictured), formerly of TPG Catterton to form L Catterton. L Capital’s existing Capital, closed its maiden fund at $2.5 billion in plans domestic IPO PE and real estate operations in Europe and 2012. A filing for the latest fund was made on Qufenqi, a Chinese electronic retailer that allows Asia will be combined with Catterton’s North December 29, indicating that 69 investors have buyers to pay in installments, has completed a American and Latin American business. The committed capital. new round of renminbi-denominated , partners of L Catterton will own 60% of the PAG targets having removed its variable interest entity combined entity, with LVMH and Groupe Arnault and structure in preparation for an onshore listing. jointly owning the remaining 40%. control deals as The company now has RMB2.77 billion ($420 well as structured million) in cash, according to CEO Min Luo. Affiliated Managers Group investments. It typically invests at B2B steel-trading platform invests in Baring Asia least $100 million Affiliated Managers Group (AMG), a US-based in equity per raises $153m global asset management company, has deal and focuses Zhaogang.com, a Chinese B2B steel-trading acquired a 15% stake in Baring Private Equity Asia on sectors that platform backed by several VC investors, has for an undisclosed sum. The senior partners at leverage private completed a Series E round of funding worth Baring will continue to hold a majority position consumption. The increase in fund size over RMB1 billion ($153 million). The company has in the business and direct day-to-day operations. the previous vintage is said to reflect the fact previously been backed by China Renaissance K2 The leadership team has agreed to long-term that PAG has added personnel as well as greater Ventures, ZhenFund, Matrix Partners, Bull Capital commitments to the firm. availability of deals of significant size. Partners, , IDG Capital Partners As of December 2014, Fund I had nine and Huasheng Capital. Orion, BNP form Asia portfolio companies – seven of them China- based – and had committed approximately $1.6 Taiwan ITRI, Mitsubishi UFJ alternatives partnership billion. There have been subsequent investments, BNP Paribas will take a minority stake in a newly- including South Korea-based Young Toys, which launch VC fund established partnership with Asia-based private was acquired from Headland Capital Partners. Taiwan’s Industrial Technology Research Institute equity and real estate player Orion Partners. They There were also three recorded exits from (ITRI) and Japan’s Mitsubishi UFJ Financial Group will launch funds together to meet growing the first vehicle as of December 2014 – Funtalk, have jointly set up a second VC fund with a target demand for exposure to alternatives in Asia. Bicon and Haitong – resulting in distributions of of NT$2.5 billion ($75 million). The fund, which about $1 billion. Exit activity since then includes is three times the size of its predecessor, has TA promotes India, Asia Universal Studios Japan as Comcast Corp. agreed received NT$1.5 billion in the initial funding. heads to pay JPY183 billion ($1.5 billion) for a 51% stake in the business. SIG Asia joins round for TA Associates has promoted Naveen Wadhera, its London-based Asia co-head, to managing online travel guide service director, while Dhiraj Poddar, co-head of the firm’s Beijing suspends domestic SIG Asia has participated in a $57 million Series India business, becomes a principal. Wadhera PE registrations D round of funding for Qyer.com, a Chinese has been with TA since 2001 and Poddar joined outbound travel service provider. Local travel tour in 2010. The Beijing government has suspended domestic operator Beijing U-Tour International committed private equity investment registrations in relation $25 million for a 5.50% stake through its Hong to suspected illegal fundraising. Since January Kong subsidiary. A tourism-focused fund, initiated GREATER CHINA 9, managers have been unable to register new by Beijing U-Tour, also participated. investment activities that involve wording VC-backed Mogujie to such as project investment, equity investment, Eight Roads leads $30m , investment acquire rival Meilishuo consultancy and advisory, capital management, round for QuanCheng VC-backed Chinese online shopping and social asset management and financial leasing. Eight Roads, an investment arm of Fidelity networking platform Mogujie has agreed to take International, has led a $30 million Series B round control of rival Meilishuo.com in a stock-swap Rival bidder for iKang of funding for QuanCheng, a Chinese software- deal. It is thought the combined entity would be as-a-service (Saas) start-up that specializes in worth around $3 billion. Tencent Holdings, which Healthcare hikes offer expense management. ClearVue Partners - which previously invested in Meilishuo, will re-up in the A PE-backed consortium that includes Meinian led the company’s - and Arbor new company upon completion of the merger. Onehealth has increased its take-private offer Ventures also participated.

4 avcj.com | January 12 2016 | Volume 29 | Number 02 NEWS

IDreamSky agrees PE- Unitas ends Fund IV plans, Sequoia leads $6m round backed take-private China team joins Permira for Indian brewer Chinese mobile game publisher iDreamSky Unitas Capital has decided against raising a Sequoia Capital has led a INR400 million ($6 Technology has agreed to be taken private by its fourth fund, and its China team, led by Jim Tsao million) round for Indian brewer B9 Beverages, the chairman and a string of VC investors, including V (pictured), will join Permira under a multi-year makers of the craft beer brand Bira 91. The firm Capital, Prometheus Capital, Legend Capital, We transition agreement. Unitas closed its third fund will use the funds to expand into new territories Capital, and StarVC, among others. The company at $1.2 billion in 2008 and retains holdings in in India and construct a new production facility, listed on NASDAQ in August 2014. five companies that have a presence in China. with the goal of expanding its sales from 240,000 Tsao - who has become chairman and head of cases per year to one million per year. NORTH ASIA China at Permira - and his six-member Shanghai- based team will continue to manage the Unitas Tata Capital invests $5m in portfolio. They will simultaneously develop Alef Mobitech Japan’s Skyland raises Permira’s presence in China. “The transition of the Shanghai team is a win- Tata Capital has invested $5 million in Alef $10m VC fund win for all parties. The team continues to provide Mobitech Solutions, a US-based mobile internet Tokyo-based early-stage Skyland active engagement optimization solution developer with offices Ventures has raised JYP1.2 billion ($10 million) and support to the in India. Alef Mobitech develops software to for its second VC fund. The new vehicle will back Unitas portfolio; improve user experience on mobile platforms approximately 30 start-ups focusing on personal and Permira gains by reducing the amount of mobile data used robotics, virtual reality (VR), artificial intelligence a proven and in order to increase relevance of services (AI) and video communications at seed stage. successful Shanghai provided and responsiveness of mobile internet team that has an applications. Fuji Startup Ventures backs extensive track record in making Japan’s The Bridge control investments SOUTHEAST ASIA Fuji Startup Ventures, the VC arm of Fuji TV in China,” John network, has committed an undisclosed amount Lewis, CEO of Southeast Asia e-commerce of funding to Tokyo-based start-up news site The Unitas, and Alex Emery, head of Asia at Permira, Bridge, alongside PR Times. The Bridge will use said in a joint statement. sites to merge the new funding to strengthen human resources Following the spin-out of Unitas’ Korea-based Moxy and Bilna, two Southeast Asia e-commerce and to launch additional media ventures. team last year, the firm initially planned to raise a sites focused on female customers and families, fourth fund that would focus exclusively on cross- have agreed to merge. The combined entity will border and China opportunities. All but one of be called MoxyBilna. Bilna’s investors include SOUTH ASIA the Fund III investments were China control deals CyberAgent Ventures, East Ventures and Golden or non-Asian companies that were bought with Gate Ventures, while Moxy is a subsidiary of Classifieds business Quikr a view to expanding their presence in the region. WhatsNew Group, a portfolio company of Ardent The private equity firm has returned $2.1 billion Capital. buys CommonFloor to LPs since January 2013, of which $1.4 billion Indian classifieds site Quikr has bought property constituted capital gains, according to a source Aslan Pharma closes $43m search website CommonFloor for an undisclosed familiar with the situation. Fund III has generated amount. Both companies have received VC a 48% return on its realized investments. Series C round funding. CommonFloor will be combined with Singapore-based biotech developer Aslan Quikr’s real estate vertical QuikrHomes. The Pharmaceuticals has closed its Series C round deal reportedly values Quikr at $1.5 billion and India’s largest online travel agency. Ctrip will of funding at $43 million with additional capital CommonFloor at $120 million. make its investment through the purchase of from new investor MVP Capital Partners. The convertible bonds and also has permission to round was led by Temasek Holdings-backed Lightbox commits $5m to buy shares on the open market, meaning it could Accuron Technologies and $34 million of the Melorra potentially own 26.6% of the company. capital was raised last year. Lightbox Ventures has invested $5 million Diagnostics player Ekuinas makes healthcare in Indian online jewelry retailer Melorra. The company will use the funds to attract talent, Thyrocare files for IPO investments promote its brand and improve its technology. Thyrocare Technologies, an Indian diagnostics Ekuinas, a private equity firm backed by company with several private equity backers, has the government of Malaysia, has invested China’s Ctrip invests $180m filed for a domestic IPO. CX Partners currently MYR79.8 million ($18.1 million) in medical claim holds an 11.3% stake in the business, with processing firms MediExpress Group and PMCare, in MakeMyTrip Norwest Venture Partners (NVP) holding 9.43%, taking a 60% stake in each company. It plans to Ctrip, a listed travel services firm based in China, and Samara Capital Partners holding 2.03%. ICICI merge them under a single holding company has agreed to invest $180 million in MakeMyTrip, Ventures is also an investor. and support regional expansion.

Number 02 | Volume 29 | January 12 2016 | avcj.com 5 asianfn.com/Research_Database.aspx Your ultimate link to the Asian private equity, venture capital and M&A markets

AVCJ database is the ultimate link between Asian dealmakers and those who provide advisory, financial, legal and technological services to the private equity, venture capital and M&A industries. The AVCJ Database gives subscribers access to more than 150,000 companies and facts and statistics on over 114,800 transactions.

Deal Report

NASDAQ listed Focus Media has received a non-binding tender offer of $5.4 per share, or $27 per ADS, of its entire outstanding common shares from a consortium of investors, including company chairman Nan-chun Jiang, CDH Investments, China Everbright Limited, CITIC Capital Partners, FountainVest Partners and The Carlyle Group. The consideration would be approximately $2.88 Features billion based on the 532.95 million common shares outstanding and not held by the chairman.

Announced (US$mln): $2,877.9400 Previous Stake: 17.56% Stage: Buy-outs (MBO/MBI/LBO)

Announced Date: Aug 12, 2012 Deal Stake: 82.44% Closed (US$mln): n/d ■ Final Stake: 100.00% A large profile pool with around 9,100 Closed Date: n/d

Deal Type: Private Equity funds, 4,300 GPs and 3,500 LPs Deal Status: Agreement in Principle Acquisition Technique:

Acquisition Attitude: Neutral ■ Comprehensive records, including Involved Companies Company Name Deal Role Amount(US$mln) Deal Stake Industry Nationality

Carlyle Asia - China Investor n/d n/d Private Equity more than 105,700 M&A transactions; CDH China Management Co., Investor n/d n/d Private Equity Hong Kong Ltd. China Everbright Ltd. Investor n/d n/d Finance Hong Kong CITIC Capital Partners Ltd. Investor n/d n/d Private Equity Hong Kong 30,000+ PE/VC investments; over FountainVest Advisors Ltd. Investor n/d n/d Private Equity China (PRC) Nan-chun Jiang Investor n/d n/d Unclassified China (PRC) Focus Media (China) Holding Investee n/d n/d Advertising China (PRC) 3,000 PE/venture-backed IPOs; and in Co., Ltd. (FocusMedia) Fosun International Ltd. Seller n/d -17.20% Steel China (PRC) Undisclosed Shareholder(s) Seller n/d -65.24% Unclassified United States Global Markets Asia , n/d n/d Securities/Investment United States excess of 5,800 exits Ltd. Investor (Carlyle Asia Banking - China) Citigroup Global Markets Asia Financial Adviser, n/d n/d Securities/Investment United States Ltd. Investor (CDH China Banking Management Co., Ltd.) ■ Pan-Asian coverage, including Citigroup Global Markets Asia Financial Adviser, n/d n/d Securities/Investment United States Ltd. Investor (China Banking Everbright Ltd.) Citigroup Global Markets Asia Financial Adviser, n/d n/d Securities/Investment United States Australasia and Japan Ltd. Investor (CITIC Banking Capital Partners Ltd.) Citigroup Global Markets Asia Financial Adviser, n/d n/d Securities/Investment United States Ltd. Investor Banking (FountainVest Advisors Ltd.) ■ Citigroup Global Markets Asia Financial Adviser, n/d n/d Securities/Investment United States Data that is updated daily and tracked Ltd. Investor (Nan-chun Banking Jiang) JP Morgan & Co Inc. Financial Adviser, n/d n/d Securities/Investment United States Investee (Focus Media Banking as far back as 1990 - the longest and (China) Holding Co., Ltd. (FocusMedia)) Morgan Stanley - Beijing Financial Adviser, n/d n/d Securities/Investment United States Representative Office Investor (CITIC Banking deepest track record in Asia. Capital Partners Ltd.) Conyers Dill & Pearman Legal Adviser, n/d n/d Legal Services United Kingdom Investor (Nan-chun Jiang) ■ Data downloads in MS Excel and PDF Copyright 2012 AVCJ Group Ltd. All rights reserved. formats Plus 1

■ Powerful search functions and accurate ✔ New features on selection statistics for the analysis ✔ Performance data on exits ■ Customer service via telephone and ✔ Portfolio holding period email

For a live demonstration or to subscribe, please call Helen Lee at +(852) 2158 9644 or email [email protected] avcj.com COVER STORY [email protected] asianfn.com/Research_Database.aspx Your ultimate link to the Asian private equity, venture capital and M&A markets Public market oddity A dozen of Chinese private equity firms have been listed on the New Third Board in recent years, but the model is far removed from that seen in other markets and regulators are concerned

AVCJ database is the ultimate link JD CAPITAL’S LISTING ON THE NATIONAL OTC market itself. It appears the regulators are months after, it issued a further RMB2.2 billion, Equities Exchange and Quotations (NEEQ), an now convinced that the system must be fixed. with selected LPs once again exchanging their between Asian dealmakers and those over-the-counter (OTC) platform also known as positions in funds for shares in the listed entity. who provide advisory, financial, legal the New Third Board, in mid-2014 drew relatively The JD approach JD’s revenue structure also changed. and technological services to the little attention. Over the next 12 months, JD Capital, formerly Jiuding Capital, was Traditionally, a GP receives an annual fee of however, the Chinese GP was regarded with established in 2007. It rose to prominence as a 2% of , plus 20% in private equity, venture capital and growing incredulity as its valuation climbed to renminbi fund manager that made a lot of small carried interests based on realized investments. M&A industries. The AVCJ Database RMB100 billion ($15 billion), on a par with The bets on domestic companies, essentially relying Following JD’s share swap, the GP interest in each gives subscribers access to more than Blackstone Group. JD has about $4.5 billion in on IPOs at valuation multiples several times those fund increased substantially. As such, it became assets under management (AUM) to Blackstone’s at which it invested. The initial motivation for the less dependent on management fees, with its 150,000 companies and facts and $334 billion. listing was to ease pressure from LPs that wanted fortunes resting solely on the performance of the statistics on over 114,800 transactions. The 10-fold increase in the Chinese GP’s to cash out, the GP repeatedly told local media. underlying portfolio companies. Ahead of the market capitalization unfolded across three share JD has raised a handful of renminbi funds listing, JD had 185 unrealized investments across

Deal Report sales following the listing, worth a combined over the past few years, which usually have a three renminbi funds.

NASDAQ listed Focus Media has received a non-binding tender offer of $5.4 per share, or $27 per ADS, of its entire outstanding RMB15.7 billion. The proceeds became dry three-year life. This narrow timeframe became The firm could also tap the capital markets common shares from a consortium of investors, including company chairman Nan-chun Jiang, CDH Investments, China Everbright Limited, CITIC Capital Partners, FountainVest Partners and The Carlyle Group. The consideration would be approximately $2.88 Features billion based on the 532.95 million common shares outstanding and not held by the chairman. powder in JD’s quest to become a “mega asset a problem as China’s IPO market slowed to a directly for financing – a much faster fundraising Announced (US$mln): $2,877.9400 Previous Stake: 17.56% Stage: Buy-outs (MBO/MBI/LBO)

Announced Date: Aug 12, 2012 manager,” encompassing private equity, mutual standstill. Even when the 14-month embargo on process than raising private vehicles. As of Deal Stake: 82.44% Closed (US$mln): n/d ■ Final Stake: 100.00% A large profile pool with around 9,100 Closed Date: n/d funds, online finance and insurance. On top of new share offerings ended at the beginning of October 2013, JD had RMB26.4 billion in AUM

Deal Type: Private Equity Buyout funds, 4,300 GPs and 3,500 LPs Deal Status: Agreement in Principle that, last year the PE firm completed a backdoor 2014, there were still more than 600 companies sourced from LPs in the traditional fashion; by Acquisition Technique: Leveraged Buyout listing of its PE business and now trades on the on the waiting list. May 2015, the total had reached RMB33.2 billion, Acquisition Attitude: Neutral ■ Comprehensive records, including Involved Companies A-share market in Shanghai. With JD’s underlying portfolio companies an increase of RMB6.8 billion. However, the firm Company Name Deal Role Amount(US$mln) Deal Stake Industry Nationality Carlyle Asia - China Investor n/d n/d Private Equity United States Driven on by JD’s success, more than a unable to list due to the gridlock, the firm was able to raise RMB10 billion in a single move more than 105,700 M&A transactions; CDH China Management Co., Investor n/d n/d Private Equity Hong Kong Ltd. China Everbright Ltd. Investor n/d n/d Finance Hong Kong dozen domestic GPs have since followed suit devised an alternative exit strategy – listing last November by selling more shares in the New CITIC Capital Partners Ltd. Investor n/d n/d Private Equity Hong Kong 30,000+ PE/VC investments; over FountainVest Advisors Ltd. Investor n/d n/d Private Equity China (PRC) Nan-chun Jiang Investor n/d n/d Unclassified China (PRC) and achieved New Third Board listings. Towards Focus Media (China) Holding Investee n/d n/d Advertising China (PRC) 3,000 PE/venture-backed IPOs; and in Co., Ltd. (FocusMedia) Fosun International Ltd. Seller n/d -17.20% Steel China (PRC) the end of last year, even some PE firms that Undisclosed Shareholder(s) Seller n/d -65.24% Unclassified United States mii urisig Citigroup Global Markets Asia Financial Adviser, n/d n/d Securities/Investment United States excess of 5,800 exits Ltd. Investor (Carlyle Asia Banking established themselves as - China) Citigroup Global Markets Asia Financial Adviser, n/d n/d Securities/Investment United States Ltd. Investor (CDH China Banking managers before entering the renminbi space Management Co., 40,000 300 Ltd.) ■ Pan-Asian coverage, including Citigroup Global Markets Asia Financial Adviser, n/d n/d Securities/Investment United States Ltd. Investor (China Banking – such as CITIC Capital, Innovation Works and Everbright Ltd.) Citigroup Global Markets Asia Financial Adviser, n/d n/d Securities/Investment United States 250 Australasia and Japan Ltd. Investor (CITIC Banking Legend Capital – announced listing plans. 30,000 Capital Partners Ltd.) Citigroup Global Markets Asia Financial Adviser, n/d n/d Securities/Investment United States Ltd. Investor Banking It remains to be seen whether their dreams (FountainVest Advisors Ltd.) 200 ■ Citigroup Global Markets Asia Financial Adviser, n/d n/d Securities/Investment United States Data that is updated daily and tracked Ltd. Investor (Nan-chun Banking will come to fruition. In late December, the 20,000 Jiang)

JP Morgan & Co Inc. Financial Adviser, n/d n/d Securities/Investment United States us Banking 150 Investee (Focus Media China Securities Regulatory Commission (CSRC) as far back as 1990 - the longest and (China) Holding Co., miio Ltd. (FocusMedia)) Morgan Stanley - Beijing Financial Adviser, n/d n/d Securities/Investment United States Representative Office Investor (CITIC Banking suddenly shut down capital raising by PE firms 10,000 deepest track record in Asia. Capital Partners Ltd.) 100 Conyers Dill & Pearman Legal Adviser, n/d n/d Legal Services United Kingdom Investor (Nan-chun on the New Third Board, leaving about 30 new Jiang) ■ Data downloads in MS Excel and PDF applicants in the queue. 0 50 Copyright 2012 AVCJ Group Ltd. All rights reserved. 2010 2011 2012 2013 2014 2015 formats Plus 1 “The regulator is concerned about the overheated market and potential risks caused No. of funds Amount (US$m) by the excessive valuations of PE firms listed on Source: AVCJ Research ■ Powerful search functions and accurate ✔ New features on selection the board. It might also be concerned about statistics for the analysis ✔ Performance data on exits suspected illegal fundraising,” says Zhiran Sheng, a partner at law firm Anli Partners. “The CSRC also itself and swapping LP interests in the funds Third Board entity to third-party investors. ■ Customer service via telephone and ✔ Portfolio holding period questioned if the funds raised by the PE firms for shares in the public entity. Investors who “After securing the financing, JD used the email have been channeled back to the real economy. were clamoring for liquidity would now have it proceeds to restructure its business, operating in If not, where is the money going?” because they could sell their shares in JD on the banking, securities, insurance and other financial Many private equity firms value permanent . ,” notes Shoushuang Li, a partner at capital and a number of global players have Beijing Tongchuang Jiuding Investment Dacheng Law Firm, who advised JD and other PE successfully tapped the capital markets for this Management – a holding company, because a firms for listings on the third board. additional funding. But the Chinese model differs GP to a cannot list – issued The firm’s ambitions extend well beyond For a live demonstration or to subscribe, please call Helen Lee markedly from the global norm, largely due to RMB3.5 billion worth of shares to 138 investors, private equity. It envisages becoming a insufficient oversight of listing structures and the over 100 of whom were LPs in JD funds. Four financial in the style of Fosun at +(852) 2158 9644 or email [email protected] avcj.com Number 02 | Volume 29 | January 12 2016 | avcj.com 7 COVER STORY [email protected]

Group or Warren Buffett’s , could improve their financial position to invest, another RMB30 billion and this has reportedly and independent capital markets fundraising co-invest, or to hire more professionals and open been invested in A-share listed rather streams makes it easier to seed new ventures. up new business lines, while raising their profiles than to support private companies. This strategy JD has launched a brokerage, a mutual fund in the market place.” clearly runs contrary to the government’s desire arm, online peer-to-peer lending and payments The board started in 2011 as a pilot program for the New Third Board to fill the financing gap platforms, and a student loan fund. It also bought in Shenzhen enabling private small and medium- for Chinese SMEs that often struggle to obtain Ageas’ Hong Kong life insurance business and is sized enterprises (SMEs) in the high-tech space loans from large commercial . applying for a banking license. to raise capital. It expanded into additional cities In May, JD acquired domestic property and then the CSRC united all the OTC markets Structural concerns developer Jiangxi Zhong Jiang Holding and the and established NEEQ. Listing requirements are In addition to concerns about the use of listing PE business was duly injected into a Shanghai- less stringent than for other bourses: companies proceeds, questions have been as to what exactly listed shell company owned by the developer. must simply have a clear shareholding structure is being listed. This comes back to the share swap A few weeks ago, the shell was rebranded as JD and two years of financial statements. strategy pioneered by JD and the use of a listed Capital, while the holding company now trades Last year the board saw more than 3,500 new entity to monetize interests in funds that hold on the New Third Board as JD Group. listings – a threefold gain on 2014 – mostly by PE- illiquid positions in private companies. “There “JD has done it all seamlessly, sometimes backed companies. Fundraising came to RMB123 is no clear regulatory framework to govern the avoiding many regulatory loopholes. fund or the ’s The key to the firm’s success is the public listing in the PRC,” KPMG’s Gu high valuation, which means it can All New Third Board listings says of the business model some PE raise a large amount of capital. You can 2015 2014 2013 sponsors seeking listings. either pledge shares to borrow money Lisiting scale The listing structure of global from banks, or raise capital directly No. of companies 5,129 1,572 356 investment firms, such as Blackstone, from investors. After that, operations Total registered shares (billion) 296.00 65.84 9.72 KKR and The Carlyle Group, are become more flexible and you can Total market capitalization (RMB billion) 2,458.44 459.14 55.31 comparatively clear. Publicly traded pursue various investment strategies Initial private placements entities generate revenue primarily instead of relying on LP commitments No. of share sales 2,547 329 60 from fund management fees, with which usually come with restrictive Shares issued (billion) 23 2.65 0.29 additional but less predictable requirements,” says a domestic PE fund Total funds raised (RMB billion) 121.3 13.2 1 contributions coming from distributed manager, whose firm is waiting for capital, or . Valuation regulatory approval to list on NEEQ. Secondary share transfers assessments are largely based on AUM Transaction value (RMB billion) 191.06 13.03 0.81 and the resultant management fees. Follow the leader No. of shares (billion) 27.90 2.23 0.20 The problem with certain Chinese GPs The first batch of firms that followed JD Transfer rate (%) 53.88 19.67 4.47 is that the share swap greatly reduces onto the board, including CSC Group, Price-to-earnings ratio 47.23 35.27 21.44 the relevance of fees, which means Heaven-Sent Capital, Shenzhen Cowin No. of investors price-to-earning (P/E) ratios are harder Capital, and Tiantu Capital, have copied Institutional invesors 22,717 4,695 1,088 to calculate. the strategy of swapping LP interests Individual investors 198,625 43,980 7,436 For example, in this respect Tiantu in funds for listed shares. They also is no different from JD. The GP issued want to become investment holding Source: NEEQ RMB2.67 billion worth of shares to 100 companies for a range of businesses, investors soon after going public, and although none have undergone a similar billion, up from RMB13 billion in 2014. PE firms 98 of these were investors in Tiantu funds. Almost restructuring to JD. accounted for 13 listings and over RMB37 billion, all of the LP interests in four funds have now The second batch have different motivations. nearly 30% of the total capital raised on the been transferred to the listed entity. Kai-Fu Lee, founder of Innovation Works, said he board. CSC and JD between them raised RMB20 Share swaps are fully legal, however. hope the listing would allow his firm to get more billion. The bullish environment was in stark “Secondary market transactions on the New funding to support start-ups with the potential contrast to the gloom on China’s mainstream Third Board are all based on a market-driven to achieve billion-dollar valuations. Meanwhile, boards, and this made regulators worried. mechanism – they are completed only if buyer CITIC Capital’s listing entity has set up a renminbi “PE firms’ fundraising activities have been fairly and seller agree on a price,” says Dacheng’s Li. fund-of-funds that will invest in the firm’s frequent since the start of this year. The size and “All investors on the board are high-net-worth offshore funds – which cannot form part of the investment of the raised funds is of concern and individuals (HNWIs) and institutions. They onshore listing – as well as selected funds raised being questioned,” Xinghai Fang, vice chairman know what they are investing in, unlike regular by third-party managers. of the CSRC, said in statement last month. retail investors in the A-share market, such as “Many firms pursue management company or “Therefore, we will enhance regulation on this housewives and senior citizens, who might have GP listings to seek additional sources of funding kind of PE firm, by halting listing and fundraising little knowledge of stocks.” to expand their business operations because activities in the national equities exchange Participation on the New Third Board is they have found that management fees are an system. We then plan to investigate their use of restricted to institutional investors or HNWIs with unstable source of revenue. And, sometimes they the proceeds.” assets of RMB50 million. At first, the board was have to cut management fees to attract more CSC said in its prospectus that it wanted to tiny in terms of trading volume and quantum LPs,” says John Gu, a partner at KPMG. “Through raise RMB9 billion to broaden the scope of its of financing, while transactions involved direct a public listing on the New Third Board, GPs business. Following the listing, the firm raised negotiation between individual sellers and

8 avcj.com | January 12 2016 | Volume 29 | Number 02 COVER STORY [email protected]

investors. The regulator then introduced a market essentially a shortcut to the front of the long and on New Third Board listings to facilitate exits for maker system, allowing brokerage firms to slow-moving IPO queue. However, the door has LPs in their existing funds. However, offshore represent listed companies and market stocks. now been shut and regulators are emphasizing LPs might be wary of portfolio GPs pursuing Some listed companies try to take advantage that the board should be seen as a stepping domestic listings, even though they have no of this system and push up their valuations. There stone to the A-share market. direct exposure to the onshore business. are suspicions that offerings are being priced at “The regulator has suspended new listings “US dollar fund investors will be concerned ultra-high P/E ratios and friendly investors then by GPs, probably because some industry about potential breaches of confidentiality come in and help drive the price even higher. In participants were too aggressive in raising post-listing – for example, to what extent fund the case of PE firms, HNWI LPs could perform this capital,” one manager observes. “It is hard to performance or LP names will be disclosed to the function. Illegal fundraising is another, related calculate a PE firm’s valuation because a lot of the public investors or regulators. Some LPs will only concern. For example, an unqualified investor net income is unrealized. Those listed GPs just get comfortable once GPs explain that the usual could pool capital from several associates in told a simple story to investors about how they operations will not be affected,” says Lorna Chen, order to meet the RMB50 million threshold. could build a company worth tens of billions, but a partner at Shearman & Sterling. “In China’s capital markets, every time a that is misleading.” There are also likely to be concerns about bubble emerges, a group of people always GPs expanding into multiple categories of asset becomes smarter and richer. Imagine the New Long-term view management simply because the public markets Third Board is a flea market selling antiques, you The general view is that listings will not resume provide capital to support these endeavors. The can quote any price for your products,” says Dayi any time soon as the CSRC looks into how risk is that Chinese private equity firms will spread Sun, managing director at fund-of-funds Jade the proceeds of previous fundraising activity themselves too thin, fail to develop the skill sets Invest. “Due to the loose listing requirements, have been used. Some expect new rules to be required to operate in different asset classes, investors see an opportunity to create a bubble. introduced that govern how private equity firms and lose focus on their core business. As a result, That’s why many firms want to follow JD and list. raise capital and what they can do with it next, as returns may suffer. By working with OTC-focused funds, they can part of efforts to ensure valuations do not spiral “If their investment capability hasn’t kept up make the bubble even bigger. Early movers take out of control. with their fundraising ability, a lot of money will advantage before the bubble bursts.” While a disappointment to some GPs, the ban fund companies that aren’t deserving. This will Regulators have also stoked investors’ is unlikely to hurt candidates such as CITIC Capital lead to poor performance,” says Jade Invest’s Sun. expectations of the New Third Board, suggesting and Legend Capital. They are well established “There are already a lot of unrealized investments it could become a formal route to the main stock names in the market, have other sources of in China, so that would really shake investors’ exchanges for companies that build scale – capital, and importantly, they are not relying long-term confidence in the PE market.”

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For a free trial, please visit asianfn.com/VCDemo. avcj.com ANALYSIS [email protected] Ending with a whimper 4Q analysis: and PAG shine in a difficult fundraising environment; large-ticket infrastructure and tech deals offer pointers for 2016; public market volatility continues to hamper PE exits

1) Fundraising: Strong finish to a weak quarter raised their first regional funds since the global months – as the Asia total decreased from $3.3 Bain Capital and PAG ensured Asia private equity . The series of closes ended in billion to $1.7 billion. fundraising ended 2015 with a flourish, but their 2014, so the amount of capital entering buyout Several GPs closed top-up vehicles with a respective final closes added gloss to a shaky vehicles dropped last year. view to re-upping in portfolio companies that are final three months of the year. According to Nearly 60% of the total raised for buyout raising larger rounds as they stay under private provisional data from AVCJ Research, October- funds in 2015 came in the final quarter. This ownership longer. There was still plenty of capital December represents the lowest quarterly was thanks to Bain, PAG and to a lesser extent entering internet-related start-ups in the last fundraising total in two-and-a-half years. Northstar Group, which closed its fourth three months of 2015, so it remains to be seen For Bain and PAG it was a swift process: Bain Southeast Asia fund at $810 million. This was whether the slowdown in VC fundraising reflects took seven months to close its third Asian fund at one of the more challenging fundraises – the anecdotal evidence of the technology bubble the hard cap of $3 billion, plus a GP commitment vehicle launched in early 2014 – due to investor deflating. As with buyout funds, much depends of at least $250 million, while PAG reached a first concerns about Indonesia. Much of the corpus on which GPs are in the market. and final close on its second regional vehicle of was captured in AVCJ’s 2014 statistics because Of the 25 largest funds to reach a partial $3.66 billion within eight months. Both funds are Northstar reached a sizeable first close. or final close in the final quarter, nine are VC larger than their predecessors. The spike in buyout activity was vehicles. Four of those nine are healthcare- It is yet another indication of the “flight to counterbalanced by one of the weakest quarters focused, led by Lyfe Capital, set up last year by quality” that has been the defining characteristic for growth capital fundraising on record. LPs former executives of Vivo Capital and IDG Capital of Asia PE fundraising in recent years. Bain and committed less than $1 billion to growth Partners, which raised $298 million. Sector PAG accounted for just over half of the $12.1 vehicles, with South Korea-based Premier specialization, it appears, strikes a chord with LPs. billion raised in the fourth quarter of 2015 – while Partners recording the largest final close at $167 additional activity may come to light, one has million. China has traditionally been the source 2) Investment: More tech, more infra to go back to the second quarter of 2013 for a of most growth funds but the fourth quarter was Two deals account for about one third of the smaller total. Even then, April-June 2013 saw notably lackluster, likely due in no small part to $31.9 billion deployed by private equity firms close to 90 funds reach a final or partial close; for uncertainty surrounding the country’s economy. in Asia during the final three months of 2015, the most recent quarter it was fewer than 40. China is also responsible for most of Asia’s down slightly on the previous quarter. It took Fundraising declined – in terms of capital venture capital fundraising and this also dropped investment for the year as a whole to $133.3 raised and number of vehicles reaching a close off substantially in the final three months of billion, the highest-ever annual total. – with each quarter of 2015. For the year as a 2015. A total of $12.7 billion entered 183 VC First, the New South Wales government whole, $58.8 billion was raised, the lowest since vehicles region-wide in 2014. This fell to $10.6 privatized TransGrid, part of its electricity 2009. This is in part a function of who is in the billion and 136 funds last year, as the China share network, with Hastings Fund Management, market. Activity on the buyout front was minimal dropped from $7.6 billion to $5.6 billion. In the Caisse de dépôt et placement du Québec, in 2009 and 2010 but in each of the four years final quarter, a paltry $841 million was raised – Kuwait Investment Authority, Abu Dhabi after that the total increased as global firms compared to $2.4 billion for the previous three Investment Authority and Spark Infrastructure paying $7.4 billion. Then Tencent Holdings, DST Global, Sequoia Capital, Capital Today and si ri ui urisig China International Capital Corp. were among 20,000 150 those that committed $2.8 billion to the recently merged Meituan and Dianping.

15,000 120 Both deals point to wider trends that could be felt in 2016 and beyond. Infrastructure was responsible for one of 10,000 90

us Australia’s biggest quarters in years, with $10.9

miio billion invested compared to $13 billion in the 5,000 60 first nine months. Along with TransGrid, Canada Pension Plan Investment Board and Global 0 30 Infrastructure Partners helped Qube Holdings to buy a minority stake in Asciano Group for $1.7 1Q2013 2Q2013 3Q2013 4Q2013 1Q2014 2Q2014 3Q2014 4Q2014 1Q2015 2Q2015 3Q2015 4Q2015 billion. QIC also led a consortium to buy the Iona Bain Capital Asia Fund III PAG Asia II Other No. of funds Gas Storage Facility for $1.25 billion. ource A esearch With the New South Wales government planning to privatize 49% of the state electricity

10 avcj.com | January 12 2016 | Volume 29 | Number 02 ANALYSIS [email protected]

previous three months. Indonesia, like Australia, si ri ui is was an outlier. Thanks to a $1 billion structured 20,000 200 transaction for local conglomerate Salim Group, led by Northstar Group, and an EMR Capital

15,000 consortium buying a gold mine for $775 million, 150 the country experienced its most active quarter on record. 10,000 is

miio 100 3) Exits: IPOs up, exits down 5,000 Given the volatility experienced by public markets across the region in the wake of the 0 50 China sell-off in mid-August, most major indices ended the fourth quarter of 2015 in a better 1Q2013 2Q2013 3Q2013 4Q2013 1Q2014 2Q2014 3Q2014 4Q2014 1Q2015 2Q2015 3Q2015 4Q2015 condition than they started it. Nevertheless, Public market sale Seconadry buyout Share buyback Trade sale No. of exits investors remained nervy, as evidenced by

ource A esearch another weak three months for public market sales by GPs. With another China-initiated plunge in early January, this caution seems justified. Public market sales came to $2.7 billion, in Largest PE investments in Asia, 4Q 2015 line with the previous quarter, and the weakest Investee US$m Investors total in two years. With trade sales also down at $7.1 billion from $8.3 billion, overall exits reached TransGrid (Australia) 7,407 CDPQ; Hastings; KIA; ADIA; Spark Infrastructure $12.5 billion compared to $15.4 billion in July- Meituan-Dianping (China) 2,800 DST; Sequoia; Capital Today; China International Capital Corp September 2015. Asciano Group (Australia) 1,700 CPPIB; Global Infrastructure Partners; Qube However, private equity-backed IPOs did CMC Holdings (China) 1,582 Alibaba; CMC Capital Partners; Oriza; Tencent rebound with 74 companies – nearly twice the number in the previous quarter – generating Iona Gas Plant (Australia) 1,253 QIC proceeds of $10.2 billion. Eight of the 20 Salim Group (Indonesia( 1,000 Gateway Partners; Northstar; TPG largest offerings took place in Hong Kong, and PT Agincourt Resources* (Indonesia) 775 EMR Capital; Farallon Capital accounted for roughly half of the region-wide HCP Packaging (China) 775 Baring Private Equity Asia proceeds between them. They included China Huarong Asset Management, Dali Foods Group, Le Mobile (China) 530 Fortune Link VC; Hongtu Sanpower China International Capital Corp, and IMAX China. Ola (India) 500 Baillie Gifford; Didi Kuaidi; DST; Falcon Edge; SoftBank; Tiger Global The 12 biggest PE-backed IPOs of 2015 Source: AVCJ Research * Assets featured 10 Hong Kong entries, which were responsible for close to half of the $40.1 billion network by the middle of this year, further deals have raised their first joint round at a valuation of raised in total. This was well of the $70.1 of a similar nature appear inevitable. Other state $18 billion. billion generated in 2014, but then there was governments are also likely to sell leases to Early- and growth-stage investment in nothing of the scale of Alibaba Group’s US existing assets in order to fund new infrastructure internet-related companies in Asia reached $9.5 offering. Exits for the year as a whole were also projects. Private markets investors are willing to billion in the final quarter of 2015, taking the down on the record return of 2014 – $49.4 billion pay a premium for operational brownfield assets annual total to $31.1 billion, more than twice the compared to $65.1 billion – and this can be but they are still wary of greenfield exposure. 2014 figure – and 70% of it went into Chinese explained by the lack of bumper trade sales. Meituan and Dianping, meanwhile, are part companies. Growth-stage activity has been One area that did hold steady on a year-on- of a growing number of companies in China’s particularly frenetic, with $16.3 billion committed year basis was secondary sales. A total of $9.1 technology space that have concluded they across more than 70 deals last year, compared to billion was transacted, compared to $9.2 billion will fare better as a single dominant player in $2.8 billion across 24 transactions in 2014. in 2014 and $7.9 billion in 2013. The 2015 total a segment than as cutthroat rivals. Investors With 2016 barely two weeks old, tech included $2.6 billion in the final quarter, with are also less willing to continue supporting sector is already emerging as a sizeable portion of that coming from two businesses that pump most of the capital a prevalent theme, with VC-backed Chinese acquisitions by Baring Private Equity Asia. into subsidy programs that are ultimately online shopping and social networking platform Of the close to a dozen control deals Baring unsustainable. Mogujie agreeing to acquire rival Meilishuo.com has disclosed since the start of 2013, eight Ride-hailing apps Didi Dache and Kuaidi in a stock-swap deal worth around $3 billion. have facilitated exits for existing private equity Dache came together earlier in 2015 and Activity is not confined to China. Southeast investors. In the final weeks of December it raised $3 billion at a higher valuation than the Asia e-commerce sites Moxy and Bilna are set emerged that the firm had bought China-based aggregated worth of the two companies when to merge, while Indian classifieds site Quikr has HCP Packaging from TPG Capital for $775 million, they operated independently of one another. bought property search website CommonFloor. while an agreement was struck to acquire Meituan-Dianping is a similar story: Dianping and Elsewhere in Asia, the fourth quarter of Interplex Holdings from CVC Capital Partners and Meituan, which closed their previous rounds at 2015 was relatively quiet with India, Japan and Standard Chartered Private Equity for around $4 billion and $7 billion, respectively, are said to South Korea seeing less than in the $318 million.

Number 02 | Volume 29 | January 12 2016 | avcj.com 11 DEAL OF THE WEEK [email protected] / [email protected] CreditAccess pursues multi-market scale

WITH 1,500 NEW HIRES EXPECTED EVERY investor in India’s Grameen Koota. Five years Olympus looked at a number of MFIs in India year, the key challenge facing CreditAccess Asia is later the company took control of the MFI and before 2010 but pulled back from investing managing growth. Microfinance is an employee- restructured it as an operating company. Also due to concerns about the sustainability of intensive business – staff oversee a large in 2012, CreditAccess entered Indonesia as a the business model and excessive valuations. number of small-ticket loans, so if a microfinance greenfield operator and set up in the Philippines The industry subsequently ran into trouble, institution (MFI) is not making enough per loan two years after that. prompting the Reserve of India to introduce to cover its costs, the model no longer works. Put With just over one million customers, INR16.7 tighter regulations. As a result, Olympus is much simply, scale is not achieved easily. billion ($249 million) in assets, more confident in the prospects Unlike most MFIs in Asia, CreditAccess must and a network of 270 branches for microfinance in the country. also make the model work across multiple as of November 2015, Grameen CreditAccess works with the markets. This approach mitigates single-country Koota accounts for the bulk of unbanked and the under-banked, risk and opens up a larger potential client base, CreditAccess’ business. However, typically entrepreneurs who have but at the same time it requires a broader base of the company thinks it can more bank accounts but cannot get local experience and expertise. than double its client base – access to capital. The company “Every country has different regulations, a currently 1.3 million – by entering estimates it has an addressable different credit culture, and their own ecosystem new markets. There are plans to CreditAccess: Business finance market of more than 200 million for validating information, so you have to pick set up in Vietnam this year and creditworthy households in Asia. your shots well,” says Daniel Mintz, managing possibly a fifth jurisdiction in 2017. Reaching these customers is dependent on director at Olympus Capital Asia, which recently “At this point our investment is limited to $30 introducing low-cost delivery systems; workable invested $30 million in CreditAccess. “Growing million, but this is a fast growing, capital intensive product and pricing models, and credit and cash by acquisition is in some ways easier, but on the business when you are opening up new markets, controls; and staff able to operate them. “Our well other hand, in the long run in some cases it’s and so we believe there will be opportunities educated, professional and dedicated people are better to build from the ground up.” to invest additional capital to support the the key differentiators every day,” a CreditAccess CreditAccess started out in 2007 as an equity management team’s growth plans,” Mintz adds. spokesperson says. IMM initiates unlikely media merger

KOREAN LIFESTYLE MAGAZINE PUBLISHER provide a sales outlet for the designers featured to capture the market share of the traditional Design House knew it needed a fresh approach. in Design House’s eight monthly magazines magazines,” Yoon says. It was doing well in 2014, with profits having and also gain exposure through the company’s Next, Design House and IMM agreed to climbed steadily to KRW5.7 billion ($4.7 million) five annual exhibitions. Oheim would also have buy a combined 60% stake in Oheim, split from a low of KRW335 million in 2006. But exclusive retail rights to products featured in the evenly between the two, with the remainder management believed that new business lines magazines, giving it an edge over other Korean held by the e-commerce firm’s management. were required to weather a downturn afflicting online specialty retailers, which typically suffer The merger process will begin at the start of the country’s magazine industry. from limited product lineups. 2017, with ownership stakes in the combined A surprising suggestion came from IMM Having won over the two enterprise calculated based on Investment, the VC affiliate of IMM Private Equity: management teams, the first each company’s EBITDA multiple the publishing house should merge with Oheim, stage of the merger was an for the 2016 financial year. IMM’s an e-commerce company specializing in home investment by IMM in Design goal is to create a business large furnishings. Though it might seem like an odd House, which was recently enough to go public, although pairing, to IMM Senior Associate Wonki Yoon the announced; the GP committed this is unlikely to happen within proposal made a lot of sense. KRW25 billion for a 34.5% stake two years. “We thought that Design House is very in the company, half of which Despite the ambition of its attractive, but the growth potential is quite came from the CEO’s holding and Design House: Online action plan, IMM feels its involvement limited at this moment,” Yoon remembers. half from newly issued shares. In in Design House and Oheim “And Oheim’s growth is quite attractive, but addition to facilitating the merger, the capital will is fundamentally a safe bet. Both companies their strength of content is quite limited. So we support Design House’s plan to take advantage are profitable, and the planned merger and thought that if the two companies are combined, of the current downturn among publishers by IPO give them the incentive to continue their they would be very attractive in the market.” acquiring some lower-performing competitors. positive growth. If the deal ends up becoming a IMM argued that combining the companies “Even though the market size is shrinking, the pioneering model for the Korean market, as the would lead to business synergies; Oheim could top player is still profitable, so we are also trying firm hopes, so much the better.

12 avcj.com | January 12 2016 | Volume 29 | Number 02 DEAL OF THE WEEK [email protected] AGIC targets Sino-German industrial synergies

KRAUSSMAFFEI GROUP HAS BEEN THE manufacturing businesses in Germany-speaking Given the size of the KraussMaffei deal – the object of Chinese interest before. Three years ago, parts of Europe. The idea is that AGIC can support company had revenue of EUR1.1 billion in 2014 when Madison Capital put the Germany-based the expansion of these companies in China. – there were always going to be other parties manufacturer of machinery used to make plastics “Cross-border is a huge opportunity,” Cai involved. Cai says he has known the chairman and rubber up for sale, several Asian parties says. “Germany has advanced technology of ChemChina, Jianxin Ren, for 17 years and looked at it. One Chinese group reportedly got and China has a huge market; GDP growth is there are frequent exchanges between the into exclusive negotiations. But Onex Corp. slow in Germany and China is at the low end state-owned player and AGIC. He describes bought the asset for EUR568 million (then $731 of the industrial technology spectrum. There the KraussMaffei investors as a consortium of million), including EUR276 million in equity. are positive synergies between China and the equal partners. ChemChina has strength locally, Now KraussMaffei has changed hands German-speaking regions. We see and AGIC is well positioned once again, and this time it will enter Chinese a big industrial revolution coming to interact with the Germany- ownership. AGIC Capital, a private equity in intelligent manufacturing and based management thanks to its firm that focuses on China-Europe cross- that is why we set up this fund.” presence in Munich. border investments, China National Chemical AGIC reached a first close of “A lot of Chinese companies (ChemChina) and Guoxin $550 million in October with CIC are interested in going to International Investment Corp. have agreed to as an anchor investor. The firm’s Germany but it’s not easy,” Cai buy KraussMaffei from Onex for an enterprise website indicates it has $1 billion adds. “First, there is a different valuation of EUR925 million ($1.01 billion). in total commitments. AGIC Kraussmaffei: German industry culture and investment It represents a first deal for AGIC and Henry makes investments of $20-100 philosophy. Then you have Cai, the firm’s chairman, sees it as a justification million, targeting minority and control positions to deal with German companies’ concerns of his investment thesis. Cai, who was previously in firms specializing in intelligent production and about patent protection and whether the executive chairman of for automation, medical equipment and healthcare Chinese investor is going to shut all the plants Asia Pacific at Deutsche Bank, established AGIC technologies, and high-end systems and in Germany. We know how to get access in last year to target mid-market technology and components. Germany, this is unique knowhow and IP.”

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AVCJ Group Ltd. AVCJ Group Ltd. AVCJ Group Ltd. AVCJ Group Ltd. Unit 1401-03, Devon House, Taikoo Place, 979 King’s Road, Quarry Bay, Hong Kong Unit 1401-03, Devon House, Taikoo Place, 979 King’s Road, Quarry Bay, Hong Kong Unit 1401-03, Devon House, Taikoo Place, 979 King’s Road, Quarry Bay, Hong Kong Unit 1401-03, Devon House, Taikoo Place, 979 King’s Road, Quarry Bay, Hong Kong Tel: (852) 3411-4900 Fax: (852) 3411-4999 Tel: (852) 3411-4900 Fax: (852) 3411-4999 Tel: (852) 3411-4900 Fax: (852) 3411-4999 Tel: (852) 3411-4900 Fax: (852) 3411-4999 avcj.com Email: [email protected] Website: avcj.com Email: [email protected] Website: avcj.com Email: [email protected] Website: avcj.com Email: [email protected] Website: avcj.com PROFILE [email protected] How the other half lives Nick Nash left a career with General Atlantic to work for one of the private equity firm’s portfolio companies. A year later he sees it as one of the best moves he’s ever made

IT WAS AN OPTION THAT NICK NASH HAD 2002. It was only his second job, after a stint own future, since management was familiar never even considered. But once he heard the as a management consultant with McKinsey enough with him to be comfortable seeing him offer he knew he couldn’t turn it down. & Company in New York, since graduating come to the other side of the desk. Even for Nash, After more than a decade at General from Harvard University in 2000 with degrees adjusting to these new circumstances turned out Atlantic (GA), most recently as head of the firm’s in chemistry and physics. Despite his lack of to be fairly easy. Singapore office, Nash was preparing in 2014 experience, Nash found the GP to be a good fit, “I tried my hardest to change my mental to return to New York for the next phase of his thanks to the atmosphere at the firm. gears from almost the very first day. I think the career. Then in December he was invited to lunch “GA’s a very special place. The culture that thing that made it very real for me was when by Forrest Li, founder and CEO of consumer Steve Denning and Bill Ford have created over we moved into our new offices in Fusionopolis, internet platform Garena. the years is unique in private equity,” he says. “It which is the main tech corridor here in Nash had a long relationship with Li and combines collegiality and tremendous sharing Singapore,” he says. “Being surrounded by such Garena, having led GA’s initial investment in the company in 2011 – which was also the firm’s first investment in Southeast Asia – and the “Regardless of whether or not Series B round earlier in 2014. Since then he had helped Garena’s leadership on a number of the industry adopts this as sort occasions, advising on strategic investments and of an established program, acquisitions in the region. Li’s determination not to lose that relationship led him to offer Nash a the subset of firms that do job as Garena’s group president. “Forrest was incredibly persuasive and said, encourage this will find that it ‘Look, you can go back to GA and help do more actually dramatically improves deals out of New York, or you can stay here as my partner and help me build what’s going to their returns” become the great internet company for the region,’” says Nash. The offer was a surprise, but as Li explained, of knowledge across offices and across vertical an amazing amount of technical, business it made a lot of sense. Not only was Nash already investment areas, with a very hard-charging and development and strategic talent, all in one familiar with the company and its management, entrepreneurial culture.” environment, just reinforced to me how special it the job of expanding Garena was similar enough is to be part of a high-growth company.” to that of growing GA’s regional business that Strong relations Heading up Garena’s expansion in Southeast he would not be jumping into the deep end Along with GA’s corporate culture, the GP’s Asia has been an enlightening experience. The completely unprepared. unique investment approach played a key role company hopes to build itself into an internet Having talked it over with the management in shaping Nash’s views on portfolio companies. platform to rival , Alibaba Group and at GA and received their blessing, Nash called Though the firm provides large investments, with Tencent Holdings, and to create an online Li to take the offer. Just over a year later, the check sizes ranging from $50 million to $500 ecosystem by investing in other tech start-ups experience has changed him more than he could million, it was unusual in being willing to commit – including Vietnamese food platform Foody have imagined. to those large rounds as a minority investor, and Singapore online grocer RedMart. In pursuit “One of the pieces of advice that I give to rather than demanding control. of these goals Nash has had to take direct friends and former colleagues in private equity is This meant that, instead of being able to responsibility for the kind of day-to-day issues that at some point in their career they absolutely direct portfolio companies, Nash had to learn that never concerned him as an investor. must do what I’ve done, and spend at least the arts of persuasion and consensus-building, The problems Nash deals with in his new 3-4 years in a senior leadership position in a giving advice as, at most, a board member. While role have also given him a new perspective on high-growth company,” says Nash. “It completely the means taking a larger those who now fill his old one. In a recent event transforms your perspective as to how to invest, risk than other firms might consider advisable for the global Kauffman Society, a network and more tactically what are the right questions at those price levels, it also means that GA has for rising talent in venture capital, Nash had a to be asking when you’re investing. So I wouldn’t managed over the years to build up closer, more conversation with another entrepreneur. While trade this experience for the world; the learning trusting relationships with its investee companies discussing the VCs who sat on each start-up’s has been phenomenal.” than GPs who insist on retaining control. board, Nash recalls, he asked how many the The move away from private equity was a That respectful relationship with Garena was other entrepreneur would miss if they did not huge step for Nash, who had worked at GA since a major factor not only for GA but also in Nash’s have a contractual right to be there due to their

14 avcj.com | January 12 2016 | Volume 29 | Number 02 PROFILE [email protected]

investment. The answer? No more than two out efficiency, it leaves their firms lacking flexibility. Also important is the relationship between of five. “There was an age in the industry when the professional and the company. In Nash’s case, “As I talk to many entrepreneurs, I think that’s everybody was simultaneously an ops he had spent nearly four years working alongside a consistent ratio,” Nash explains. “In general improvement person, a prospector, a board Garena’s management when the CEO made his there are firms like GA, KKR, and Silver Lake, member and an investment committee member, offer. That chemistry helped him enter his new where the board engagement is very valuable, and the wearing of multiple hats created a role quickly and comfortably. but unfortunately as the industry has grown, tremendous amount of knowledge and skill sets,” Finally, a professional interested in making the capacity of the industry at the investment he says. “The specialization that’s taken place over this kind of move should pick a company that is professional level to be strategic and add value at time has certainly helped optimize a little bit, but going through a transition of its own. Whether board level sometimes hasn’t caught up with the it has probably also taken away from some of it be from a local player to a regional major, or growth in the number of firms, the number of that learning.” from a private firm to public, companies that investments, and the assets under management.” are transforming themselves will offer more Nash believes that his experience may offer a Think before you jump opportunities for newcomers to build their skills model for the industry to improve its value-add Though Nash encourages other PE professionals and experience. capability. The kind of lessons he is learning as to take his example, it is not something that These conditions can be difficult to meet, and an entrepreneur will help not only as a board one can jump into. It would also be counter- to a certain extent they rely on factors beyond member, if he returns to the world of investing, productive for PE firms to require their staff to an individual’s control; therefore the mid-career but as a potential member of a deal team as well. take this sort of career break. Those who want to sabbatical may never become a widespread Having seen the kind of issues that can strike pursue such a change must take several factors practice in PE. However, Nash believes that the a company, he will be much better prepared into account. benefits are clear enough that it should be seen for the questions that need to be asked to spot The first is the temperament of the as a valid option. potential problems. professional. There are some who have a natural “The level of understanding you get by being This kind of mid-career sabbatical can curiosity about the inner workings of their inside of a company dramatically improves your help with another problem that Nash portfolio companies, and others who do not. ability to be a good investor,” he says. has seen growing in the industry: that of While the latter might actually have the have the “Regardless of whether or not the industry overspecialization. More and more, newcomers greatest need for the experience, it is unlikely adopts this as sort of an established program, to the field concentrate on building their that they will be interested in it, and forcing it the subset of firms that do encourage this will expertise in certain roles and leave other jobs to on them is not good for the professionals or the find that it actually dramatically improves their members of other teams. While this may improve company. returns.”

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avcj.com 13th Annual Private Equity & Venture Forum Australia & New Zealand 2016 2-4 March 2016, Sydney

SIGN UP NOW! AND SAVE GLOBAL PERSPECTIVE, LOCAL OPPORTUNITY US$200 (until 29 JAN only) Senior industry professionals confirmed to speak include: Michael W. Arpey Steve Byrom James Carnegie Managing Director Head of Private Equity Senior Managing Director THE CARLYLE GROUP FUTURE FUND BLACKSTONE

John Haddock Andrew Major Marcus Simpson Managing Director and General Manager Head of Global Chief Executive Officer Unlisted Assets Private Equity CHAMP PRIVATE EQUITY HESTA QIC

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A snapshot of LPs who attended the event: Dhabi Investment Authority • AlpInvest Partners • Altius Associates • AMP Capital • •ATP PEP • Axiom Asia Private Capital • BlackRock Private Equity Partners • Capital Dynamics • Coller Capital • CPP Investment Board • DBJ Asset Management • DMK Foundation • DuPont Capital Management • First State Super • Funds SA • Future Fund • HarbourVest Partners • Hermes • GPE • HESTA • Lexington Partners •Leyland Private Asset Management • MassMutual Life Insurance Company • Media Super • MetLife • MFCo • MLC Investment Management • Munich Private Equity Partners • Nomura Private Equity Capital • Northgate Capital • Ontario Teachers’ Pension Plan • OPTrust Private Markets Group • Pantheon • QIC • StepStone • Sumitomo Mitsui Trust • Sunsuper • Top Tier Capital • UOB Asia Investment Partners • Vantage Asset Management • Wilshire Private Markets

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