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Buyout Fund’s Role in Chinese Merge and Acquisition Transactions

Author: LiuYiTao
Tutor: FanWeiZuo; YuFan
School: Shanghai Jiaotong University
Course: Business Administration
Keywords: private equity buyout fund merge&acquisition transaction Chinese merger&acquisition market
Type: Master's thesis
Year: 2013
Downloads: 331
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In recent years, with the opening up of the relevant policies and GEM has been established, the private equity fund has expanded rapidly in our country, there has been universal private pomp. Zero2IPO Research Center, an independent investment research institution, indicated that more than18billion U.S. dollars have been raised in year2012. However, with the slowdown in the domestic IPO since2012, more and more private equity firms are facing problems of investment exiting, fund-raising, even many funds cannot sustain any longer. This phenomenon exposes the periodic problem in the development of China’s private equity funds:serious homogeneity. Most funds concentrated in the growth period investment. Statistics indicates that there are still more than70%of the private equity fund raised in2012as growth funds. Compared to buyout funds’dominant market position in developed financial markets such as European and the United States market, China’s private equity industry has yet to adjust for a long period. The buyout fund will gradually accelerate its development in China and eventually play an increasingly important role in the market. Most domestic research focuses on buyout fund development and market prospects, such as "Analysis of mergers and acquisitions fund" by Wu Kang hong at Jiangxi University of Finance and Economics; Wang Wei and other’s "High-yield bonds and leveraged buyouts-China Opportunities" and so on. The research about the buyout fund’s role in transaction level is rare. The innovation of this paper is mainly to provide insight into actual cases, the use of listed company announcements, financial statements and other information to analyze the role played buyout funds in M&A transactions in China.We must first dig buyout fund’s connotation and understand the history of its development to understand the role of buyout funds in the M&A market in China. Secondly, due to the characteristics of Chinese M&A market, many M&A transactions are impacted by the state-owned economic influence with administrative color. Aftering figuring out the features of buyout fund and Chinese M&A market, we could briefly draw the role of M&A funds in the Chinese market to illustrate three aspects during the M&A transactions, according to their strengths and advantages: Pre-transactions preriod, use secondary financing to meet demand in large-scale financing; In-transaction preriod, acting financial adviser to arrange structure of the transaction; Post-transaction preriod, output management improve business conditions. As the M&A funds often have large capital scale and have secondary financing ability, the could meet the huge capital requirements during M&A transactions. Although leveraged buyout cases are still rare in Chinese market currently, the buyout funds role will become increasingly important with the mature of the bank loan operation for M&A deals and the high-yield bonds marked has not developed in domestic market.On another hand, the buyout fund managers are generally experienced financial and investment industry expertises, who are able to struction the trading arrangements to optimize the firms capital structure and to circumvent potential legal and regulatory issues in the transaction. In the deal of COFCO acquiring Mengniu, HOPU Investment was not only a major investor, but also a financial adviser. Through its team’s extensive investment banking experience, HOPU helped COFCO completed the acquisition successfully. In addition to the financial and trading experience, buyout fund’s another premium is the ability to integrate industry resources. Foreign dominant buyout funds typically have a wide range of professional managers resources those could output management personnel to the company with new strategies to enhance the value of the target company after the completion of acquisition. The United States NewBridge Investment’s acquisition of Shenzhen Development Bank is a typical case of management output. Newbridge leveraged its team decades’experience in the banking sector to help the Shenzhen Development repositioned in the Chinese commercial bank market and improve its asset quality. It turned the bank from the verge to insolvent to a competitive bank in just four or five years and eventually sold to PingAn.Although the buyout fund in China’s development history has been more than a decade, but the overall level of investment and scale is still in the early stages of development. Disclosure of deals stories and public information available are limited, causing some obstacles to the writing of this article. In the final chapter of this article, we analyzed the opportunity for China buyout fund in the future growth and the limitations as well. With the rapid development of China’s capital markets and financial instruments has improved steadily, the buyout fund’s importance play in the future of China’s M&A transactions will be greatly improved.

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