By Frank Sun
Chinese acquirers are playing an increasingly important role as buyers of private equity sponsored companies — nearly 200 portfolio companies were sold to Chinese entities in 2016. However, in our view, measures taken by the Chinese government to scrutinise transaction fundamentals more closely and slow capital outflows have impacted deals. The number of deals completed so far in 2017 has fallen to 63, compared to 109 at the same point last year. With Chinese deals now facing higher abort risks, we consider what buyout firms must know and do in order to achieve a successful exit.
Why Do the Deal?
Chinese regulators are focusing on the authenticity and commercial purpose of deals by Chinese companies. Acquisitions with a solid rationale that benefit the Chinese economy are unlikely to be rejected outright. So-called “irrational” deals (outside of a Chinese buyer’s core sector, particularly in the real estate, media, sports or hospitality sectors) will face greater regulatory hurdles. Private equity firms and their advisers need to factor this into any approach from a Chinese buyer. Continue Reading