Deal makers are “going global” to search for growth, where Chinese private equity (PE) firms are particularly attracted by under-served nature of new markets and continue to consider international opportunities, given the significance and success of the country.
According to Grant Thornton’s latest Global Private Equity Report 2012, 52% percent of the PE firms interviewed expect the majority of the trade buyers they transact with to be foreign. Most of them expect non-domestic strategic buyers to originate from regions such as China, Japan, and Korea (31%), Europe (24%) and North America (22%).
“Globalisation is no longer the preserve of the largest multinationals," says Barry Tong, advisory partner at Grant Thornton Hong Kong. "Businesses of all shapes and sizes now need to be adept at looking beyond boundaries in the relentless pursuit of growth. We are now seeing more and more Chinese PE firms focused on opportunities in Southeast Asia to search for growth and to cope with keen competition for fewer quality investment opportunities in China.”
Decline in both fundraising optimism and investment activity
Fundraising is expected to be very tough globally, with negativity surrounding the fundraising outlook at 72 percent, up 26 percent from 2011.
The BRICS (Brazil, Russia, India, China and South Africa) recorded the most dramatic decline in optimism from 2011, with 78 percent of respondents describing the fundraising outlook as “negative” or “very negative”, rising from 39 percent in 2011.
PE managers are also more cautious than they were last year, with 56 percent of respondents in China expecting a decrease in deal making.
“Despite the drop in optimism for China, it is still on top of many PEs’ radar," comments Eugene Ha, partner of advisory services at Grant Thornton Hong Kong. "However, validating the target company’s track record is a crucial factor to attracting new investment. There is no doubt that limited partners are more thorough in the time and attention that they have spent in due diligence.”
According to Tong, private-equity fundraising and transactions decreased in China this year, as weak markets make IPO exits tough while continued high valuations put off investors.
"In Asia, China continued to dominate fundraising, however, with local currency funds taking up a larger share of the total,” Tong adds.