Más contenido relacionado La actualidad más candente (18) Similar a Private Equity Trends in China - Deloitte (20) Private Equity Trends in China - Deloitte1. The Dbriefs China Issues series presents:
Private Equity in China: The
Trends Reshaping the
Landscape
Gary Chan, Partner, Deloitte Touche Tohmatsu CPA Ltd.
Chris Cooper, National Leader, U.S. Chinese Services Group, Deloitte LLP
Jennifer Qin, Partner, Deloitte Touche Tohmatsu CPA Ltd.
October 13, 2011
2. Release for answers to polling questions
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3. Agenda
• Recent PE/VC activity
• Investment prospects for China’s seven new
strategic sectors
• Fund of funds and other future opportunities in
China
• Question and answer
Copyright © 2011 Deloitte Development LLC. All rights reserved.
5. China PE/VC Industry Development
2008: 2011:
- Draft listing rules for China GEM; - QFLP launched in Shanghai, Beijing
- Updated regulations for China stock and Chongqing;
Linear chart represents total exchanges;
- First LLP RMB fund in Tianjin Binhai
- CSRC released guidance for direct
investments by securities firm allowing
investment volume of PE/VCs District under a set of preferential
policies;
for 33 securities firms to invest in PE;
- SSF made direct investments in PE - Over-the-counter market for growth
funds(CDH ,Hony,Mianyang Industrial enterprises
Fund (managed by CITIC)
2007:
2000: - Pilot run for direct
- 9 pointers for China GEM; investment of securities firm; 2010:
- Tentative guidance for foreign State Council approves the
investment in domestic expansion of RMB industrial - October - <Tentative
companies 2001: investment funds Measures for equity
- Tentative guidance for foreign 2009: investment by insurance
PE/VC investment in Zhongguancun; 2005: companies>;
- SAFE tentative - Oct 23rd-launch of
- Internet bubble; GEM provides new - December – the set-up
- CSRC restricts direct investment of measures by of RMB60bn FoF by CDB
Regulation No. 11, 29, exit routes for PE/VC
security firms and Suzhou Venture
2003: 75 on VC investment Group
- SAFE issued management
Regulation No. 3 2006:
1999 and earlier: - Regulation No. 10 and the
- CDNCA Plan No. 1; boom on domestic IPO;
- Draft for Investment Fund 2002: 2004: - First batch of approved
Law; - Guidance for foreign - Catalogue for foreign Industrial Investment fund in
- Suggestions from investments in investments in SMEs; December
Department of Technology telecommunication; - Governing hazard for
on VC development - Disintegration of CICC foreign investments
direct investment arm and the
set-up of CDH
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Source: Zero2IPO Group, Deloitte analysis
1 ©2011 Deloitte Touche Tohmatsu Limited. All rights reserved.
6. Accelerated Growth in PE/VC Investments
817 Number of Investment volume
deals (million USD)
Investment volume
投资金额
(US$M)
(美元百万元)
Eastern
607 China
投资案例
No. of deals
(家) $5,387
440
434 $4,210 477
Southern
324 China
$3,247
$2,701
271 253
226 228
$1,777
216 177 $1,269
$927 $992 $1,173 Northern
China
$580 $528 $418
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 1999-2010 geographical allocation
for investee company
Source: Zero2IPO Group
2 ©2011 Deloitte Touche Tohmatsu Limited. All rights reserved.
7. PE/VC Fund Raise Indicates Sporadic
Growth Pattern
Annual compounded growth rate:+ 29% in amount
+ 14.22% in no. of fund 158
Newly raised 116
新增资本量
fund amount
(美元百万元)
(US$M)
94
新募基金数
No. of new funds
$11,169
(只)
58
$7,310
39
34 $5,485 $5,855
28 29
21 $3,973
$4,067
$1,298
$639 $699
2002 2003 2004 2005 2006 2007 2008 2009 2010
Source: Zero2IPO Group
3 ©2011 Deloitte Touche Tohmatsu Limited. All rights reserved.
8. Poll question #1
Over the next 12 months, do you expect investment activity
in the Chinese private equity market to increase, decrease
or stay the same?
• Increase
• Decrease
• Stay the same
• Don’t know / not applicable
©2011 Deloitte Touche Tohmatsu Limited. All rights reserved.
9. Current Challenges – Exit Routes
Unitary exit routes dominant by IPO and temporary
closure of IPO channels
Exit routes in the U.S. and Europe for the years 2005-2010
were dominant by M&A. In Europe, IPO accounted for less
than 10% of exits routes, U.S. 12% but China 85%.
The following figures represent:
1. Continuous increase of PE/VC-backed IPO and finance condition
2. 50% of which IPO are on Shenzhen SME board and GEM
3. The rising of the A-stocks‘ market value as a percentage of GDP
indicates the narrowing routes of IPO
Source: Zero2IPO Group, Deloitte analysis
4 ©2011 Deloitte Touche Tohmatsu Limited. All rights reserved.
10. Increasing Number of PE/VC-backed IPOs
Total investment amount and capital raised through IPOs
by VC/PE-backed companies
120,000 160
150 140
100,000
120
80,000
100
60,000 80
72 60
40,000 47 $5,386
60
$4,210 40
23 $3,247 29
22
20,000 33
$1,269 $2,700 20
$1,173 $1,777
8
7 11
- 7 2 10 -
2004 2005 2006 2007 2008 2009 2010
境内IPO筹资额(百万美元)
Domestic IPO capital(US$M) 境外IPO筹资额(百万美元)
Offshore IPO capital(US$M) 境内IPO数量 IPO
No. of domestic
境外IPO数量IPO
No. of offshore PE/VC investment amount
创投投资金额(百万美元)
(US$M)
Source: Zero2IPO Group
5 ©2011 Deloitte Touche Tohmatsu Limited. All rights reserved.
11. IPOs Dominate Exit Deals
Example of Q1 2011
Industry Breakdown of Exits (2011Q1) Option Breakdown of Exits (2011Q1)
118 (No. of Exits) 118 (No. of Exits)
Machinery
23
Manuf acturing
Internet 16 Sale
IT 13 Trade, 3, Others, 1,
Chemical Raw Materials 3% 1%
12 M&A, 4,
& Processing
3%
IC 9
Bio/Healthcare 8
Energy & Mineral 7
Clean-tech 7
Agr/Forestry /Fishing 6
Electronic & Opto-
5
electronics Equipment
Constructing/Engineering 4
Broadcasting & DTV 1
Finance 1
Entertainment & Media 1
Others 5
IPO, 110,
0 5 10 15 20 25 93%
Source: Zero2IPO Group
6 Copyright © 2011 Deloitte Development LLC. All rights reserved.
12. The Question of Variable Interest Entities
What is a Variable Interest Entity (VIE)?
• Investment structure that employs contractual agreements to enable foreign
investment in Chinese sectors where it would otherwise be restricted.
• 1,000s now used in a wide range of sectors (Internet, business services etc.)
• Two frequent users:
- Chinese companies listing abroad (40+% of U.S.-listed cos. as of mid-2011)
- PE/VCs
What’s changed?
• Sept. 1 - China’s new national security review system for vetting foreign
acquisitions went into effect.
• Article 9 prohibits foreign investors from circumventing national security
reviews by “any means” including “… trusts, multi-level investments, leases,
loans, contractual control [and] offshore transactions.”
• Specific regulations addressing VIEs are thought to be under development.
Implications? Not yet clear, but some intriguing questions:
• How would new restrictions affect the pace of VIE-dependent offshore IPOs?
• How will this affect funding in sectors heavily reliant on PE/VC financing?
Source: PRC Ministry of Commerce Provisions on Implementation of Security Review Systems Regarding Mergers and Acquisitions of Domestic Enterprise
by Foreign Investors),, media
7 Copyright © 2011 Deloitte Development LLC. All rights reserved.
13. Poll question #2
What do you expect to be the most common exit route for
private equity deals over the next 12 months?
• Domestic listings
• Overseas listings
• Trade sales (M&A)
• Don’t know / not applicable
Copyright © 2011 Deloitte Development LLC. All rights reserved.
14. PE/VC-backed IPOs
Stock Exchange Analysis (2000-2011)
VC/PE-backed IPOs by Exchange
140.00%
2000-2011
127.10%
FWB KOSDAQ 120.00% Market value of A-stock/GDP
A股市值/GDP
SGX <1% <1% London AIM
4% <1%
Singapore NASDAQ 100.00%
Catalist 8% NYSE
Circulated A-stock value /GDP
A股流通市值/GDP
1% HKSE 8%
16%
80.00% 72%
HK GEM SSE
66%
<1% 5%
60.00%
58%
48.50%
42.20%
40.40%
45%
39.70%
40.00%
31.90%
Shenzhen
Shenzhen 31.30%
GEM 29.50% 36.20%
SME 23.20%
22%
34%
20.00%
16.20% 17.60%
15%
13.20% 9.70% 11.80%
9.20% 10.40% 7.30%
5.80%
0.00%
Source: Zero2IPO Group
8 ©2011 Deloitte Touche Tohmatsu Limited. All rights reserved.
15. Current Challenges – Financing Pressure
Financing pressure from reduced liquidity of foreign
capital and domestic monetary stringency
• Monetary stringency meant investors are likely to hold on cash
resulting in slowing investment progress.
• The ability of funds to raise capital will be sabotaged given such
situation.
• Statistics shows operating net cash flow of 268 listed companies
dropped 47% from RMB38.8bn in 2009 to RMB20.6bn in 2010.
Increased expenses, inventory stagnation and difficulty in capital
turnover put strain on cash positions of these companies.
• The following charts indicate a decrease in foreign currency funds
since 2009, a year where RMB funds for the first time surpassed US
Funds in fund commitment.
Source: Zero2IPO Group, Deloitte analysis
9 ©2011 Deloitte Touche Tohmatsu Limited. All rights reserved.
16. Capital Raised by RMB and Foreign Funds
18000
16500
Capital raised by foreign
外资创投募资
fund (US$M)
(百万美元)
15000
本土创投募资
Capital raised by RMB fund
(US$M)
(百万美元)
13500
新设外资基金
No. of new foreign fund
(只)
12000 新设本土基金
No. of new RMB fund
(只)
10500
9000
7500
6000
4500
3000
23 22 21
17
1500 146
9 10 12
7 6 84
18 21 12 12 14 87
0 32
2002 2003 2004 2005 2006 2007 2008 2009 2010
Source: Zero2IPO Group
10 ©2011 Deloitte Touche Tohmatsu Limited. All rights reserved.
17. RMB vs. Foreign Funds
Led in Terms of No. of Investment Deals in 2011 Q1, but with Less
Average Investment Amt.
Investment Distribution by Currency (2011 Q1) Investment Distribution by Currency (2011Q1)
232 (No. of Deals) 1,928 (Investment Amt., US$M)
Undisclose
d, 21, 9%
Foreign RMB,
Currency, 917.28,
68, 29% 48%
Foreign
Currency,
RMB, 143,
1011.14,
62%
52%
Source: Zero2IPO Group
11 Copyright © 2011 Deloitte Development LLC. All rights reserved.
18. Current Challenges – Rapid Growth
Lack of professionals brings risks and challenges
to the funds:
• China Venture report indicates a vacancy of 10,000
positions in the PE/VC industry. However, the industry’s
short history of 10 years does not provide nearly enough
experienced individuals. A large number of PE/VC
partners have less-than-five years experience.
PE fund boom brought forward large amounts of
unstandardized operations, undermining market
practice.
Source: China Venture
12 ©2011 Deloitte Touche Tohmatsu Limited. All rights reserved.
20. Emerging Strategic Industry Plan
China has extensive plans to develop seven strategic emerging sectors,
targeting 8% of GDP by 2015, up from 3% in 2010; and 15% by by 2020.
Seven Strategic Emerging Industries Expected Investment
Energy Efficiency & Environmental
RMB 3 trillion by 2015
Protection
Next-generation IT RMB 1 trillion to be invested in IT by 2014
2009-2011, planned RMB 850 billion in investments
Pharma & Biotech
for health care system reform
High-end manufacturing RMB 1.5 trillion target by 2015
Source of
RMB 5 trillion in total by 2020: funding?
- RMB 3 trillion for hydropower, wind
power, nuclear power, solar energy;
New Energy - RMB 1 trillion for smart grid;
- RMB 1 trillion for new energy vehicles, clean
coal etc.)
RMB 4.5 trillion for rail and subways by 2015
New Materials RMB 750 billion by 2015
New Energy Automotive Up to RMB 1 trillion by 2020
Source: PRC State Council
13 Copyright © 2011 Deloitte Development LLC. All rights reserved.
21. Clean Tech – A Leading Sector of Interest
Industry Breakdown of PE/VC Investments (2011 Q1) Industry Breakdown of PE/VC Investments (2011 Q1)
232 (No. of Deals) 1,928 (Investment Amt., US$M)
Internet 45 Internet 693
Machinery Manufacturing 23 Automobiles 154
Electronic & Opto- Electronic & Opto-
15 142
electronics Equipment electronics Equipment
IT 15 Energy & Mineral 117
Clean-tech 14 Clean-tech 110
Telecom & Value-added
13 IT 90
Services
Chemical Raw Materials
11 Machinery Manufacturing 86
& Processing Chemical Raw Materials
Bio/Healthcare 9
& Processing
61
Entertainment & Media 6 Constructing/Engineering 59
Automobiles 6 Education & Training 43
Energy & Mineral 6 Chain Retail 41
Agr/Forestry/Fishing 5 Bio/Healthcare 40
Telecom & Value-added
Constructing/Engineering 5 Services
33
Textile & Clothing 5 Textile & Clothing 26
Chain Retail 4 Finance 23
Education & Training 4 Agr/Forestry/Fishing 17
Finance 3 Entertainment & Media 17
IC 3 Broadcasting & DTV 10
Broadcasting & DTV 2 IC 7
Logistics 1 Food & Drinks 5
Food & Drinks 1 Logistics 4
Others 10 Others 43
Undisclosed 26 Undisclosed 108
0 10 20 30 40 50 0 100 200 300 400 500 600 700 800
14 Source: Zero2IPO Group Copyright © 2011 Deloitte Development LLC. All rights reserved.
22. PE/VC Activity by Clean Tech Sub-Sector
Disclosed China PE/VC investment value, by sub-sector (2007Q1-2011Q2)
Wind Agriculture
Water and Wastewater Air and environment
Biofuels and
biomaterials
Transportation
Energy Efficiency
Energy Storage
Materials
Other
Solar Recycling and Waste
Smart Grid
• Leading sub-sectors since 2007: solar (US$1.23 billion invested), transport
(US$1.16 billion) and energy efficiency (US$1.10 billion).
• Largest China deal for 2011Q2 was a solar deal (US$36 million).
Source: Clean Tech Group
15 Copyright © 2011 Deloitte Development LLC. All rights reserved.
23. Poll question #3
What do you see as the key strength of China relevant to
the long-term growth of the private equity market?
• Strong domestic economy
• Large consumer market
• Government structure and support for PE
• Infrastructure growth / urbanization
• Relative attractiveness versus other emerging markets
• Don’t know / not applicable
Copyright © 2011 Deloitte Development LLC. All rights reserved.
24. Recently Announced Funds Focusing on
China Clean Tech
Fund Date Size Mgmt Investment focus
Privately-held companies in the water,
China Clean Tech Sept. JV between UK and
$200 million alternative energy, environmental remediation
Partners 2011 Beijing-based PEs
and energy storage & distribution sectors.
Suzhou ABC Sept. Clean energy, advanced manufacture and
RMB 1billion Shanghai-based PE
Venture Fund 2011 biotechnology.
Hudson
NY-based clean tech Solar, wind, and biomass projects in Yangzhou
(Yanghzou) Clean Sept.
RMB ? PE and city of (Jiangsu province) ; US$20-50 million deals is
Energy Equity 2011
Yangzhou its “sweet spot”
Investment Fund
Blue Ridge Zijin
June Renewable energy, new materials and other
Equity Investment RMB 5 billion NY-based hedge fund
2011 growth sectors.
Funds
AgBank (Wuxi)
June State-owned bank and High-growth sectors such as energy efficiency
Private Equity RMB 15 billion
2011 city of Wuxi in Wuxi (Jiangsu Province)
Fund
May Clean technologies across China – 65% early
SinoGreen Fund $100 million Taiwan-based PE
2011 stage companies and 35% start-ups.
JV by German bank Companies engaged in clean energy,
China Clean
May $500 million and Tianjin Binhai High environmental resource management, energy
Energy Fund
2011 Tech Industrial Zone and material in Tianjin and other Chinese cities
Source: Media sources, Cleantech.com and Quarterly Cleantech Investment Monitor
16 Copyright © 2011 Deloitte Development LLC. All rights reserved.
25. China Drives the Global Clean Tech IPO
Market
63 IPOs with RMB 65 billion (US$10 billion) raised in 2010.
Number of Clean Tech IPOs Amount Raised by Clean Tech IPOs
54 93 US$13B US$16B
100% 100%
10 1.25
1.64
90% 90% 1.06
10
80% 80% 1.94
25
10 4.06
70% 70%
60% 60%
North America North America
50% Other 50% Other
7
Europe Europe
7.94
40% China 40% China
63
30% 30% 9.97
15
20% 20%
10% 10%
7 1.56
0% 0%
2007 2010 2007 2010
Source: Clean tech Group, Deloitte Analysis
17 Copyright © 2011 Deloitte Development LLC. All rights reserved.
27. Future Opportunities – Fund of Funds
Birth of Fund of Funds (FoF) puts forward institutional
investors and a middle man
• Currently in developed countries, equity investment funds are seen in line
with banks and insurance companies as the three major financial
institutions. 20% of equity investment fund’s capital come from FoF.
• The implementation of following policies encourages the growth of FoF in
China:
1. In 2006, 10 industrial investment funds are approved for set up by the
State Council;
2. In 2008, China’s Social Security Fund was approved for equity
investments
3. In Oct. 2010, insurance companies are permitted to make direct
investments in equity
4. In July 2011, 33 securities firm are approved to invest in PE.
Source: Zero2IPO Group, Deloitte analysis
18 ©2011 Deloitte Touche Tohmatsu Limited. All rights reserved.
28. Future Opportunities – Industry Integration
Industry integration provides more M&A opportunities
• National Association of Merger and Reorganization indicates a new record of
4,300 M&A transactions in 2010 with total transaction amount of up to
US$200bn, an increase of 16% in number and 27% in amount from 2009
• IT, bio-med and clean tech are amongst the top industries for M&A
• Recent M&A transactions:
- COFCO joined hand with Hopu Investments in acquiring 20% of Mengniu
Diary for HK$17.6 per share totaling HK$6.1bn, largest M&A deal in the
food industry.
- In 2007 and 2009, a large U.S. PE participant in the Chinese market
transferred its ownership in Shuanghui to CDH resulting to CDH indirectly
owning 25.36% of equity in Shuanghui. Dec 2010, reorganization of
Shuanghui increased CDH’s interest in the firm to a market value
RMB31.3bn, profitability of over 10 times of the original price.
Source: Zero2IPO Group, Deloitte analysis
19 ©2011 Deloitte Touche Tohmatsu Limited. All rights reserved.
29. Poll question #4
In which industry sector do you expect to see the most deal
activity over the next 12 months?
• Consumer/retail
• Clean tech
• Pharma / biotech / healthcare
• Technology, media & telecommunications
• Other
• Don’t know / not applicable
©2011 Deloitte Touche Tohmatsu Limited. All rights reserved.
30. Future Opportunities – Industry Diversification
Diversified development of industry leading to different types of
funds
• Weizhe’s Jiayu Fund specialized investments in second hand and incomplete
projects which lack proper management to realize IPO, offering reorganization
strategies to companies that have yet to recover from the financial crisis.
• PPP and PIPE:
- Strategy of “PPP” Funds are to privatize Chinese public companies listed offshore
through acquisition. After a round of restructuring, the aim is to list these companies
on domestic stock exchange. On Jul 25th 2011, Taurus Investment, Pingan Securities
and Grandall Law jointly set up a PPP fund, which targets a initial closing of
US$200M
- J.Rothschild Creat Partners joined with Beijing Municipal government in establishing
an offshore RMB Fund to help Chinese companies for outbound investment
• Increasing number of PIPE funds which specialize in investing in public entities
• Statistics show that in 2010, the net operating cash flow from 268 companies
have amounted to RMB20.6bn, 47% down from 2009 at RMB38.8bn. Increased
expenses, inventory stagnation and difficulty in capital turnover put strain on
cash positions of these companies. Investments by means of PIPE in listed
companies can help alleviate the cash pressure.
Source: Zero2IPO Group, Deloitte analysis
20 ©2011 Deloitte Touche Tohmatsu Limited. All rights reserved.
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34. Contact info
• Gary Chan
garychan@deloitte.com.cn
+ 86 (21) 6141 1318
• Chris Cooper
chriscooper@deloitte.com
+1 408 704 2526
• Jennifer Qin
jqin@deloitte.com.cn
+ 86 (10) 8520 7131
Copyright © 2011 Deloitte Development LLC. All rights reserved.
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