Deal focus: Mandarin, Zoomlion team up again in Italy

Last week, Zoomlion and MCP agreed to buy a 75% stake in Ladurner, an Italian waste treatment and environment protection firm, for EUR75 million ($85 million). The Chinese company put in EUR57 million and has a 57% interest in the business, with the private equity firm contributing the remainder.

"Our local partners have extensive networks in Italy and we are very interested in environmental protection sector. Since Italy isn't a huge market and the players in this space are limited, we know which ones are the right partners to be introduced to the Chinese market," says Jenny Gao, managing partner at MCP.

Zoomlion's appetite for outbound exposure is driven by falling domestic demand as economic growth slows. The company's revenues fell 33% year-on-year to RMB25.9 billion ($4 billion) in 2014, while net income plunged to RMB594 million from RMB3.8 billion in 2013.

Zoomlion wants to stem the decline by diversifying its core business from construction machinery to equipment used in the environmental, agricultural and financial services sectors. Last year it teamed up with Hony Capital - which was also involved in the CIFA deal - to buy a combined 80% stake in Chinese farm machinery maker Chery Heavy Industry.

Ladurner represents another opportunity for Zoomlion to climb the value chain, which could speed up this diversification process. It owns high-end technology used in the construction of plants for household waste treatment and the production of renewable energy from liquid or solid waste and agricultural biomass, as well as in civil and industrial water treatment.

"Zoomlion is already the domestic market leader in several types of environmental protection machinery. It wants to provide world-class technology to its clients and Ladurner is very complementary in this respect," Gao says.

MCP firstly sees itself as a bridge to integrate the two companies, which have very different corporate cultures. More importantly, the GP hopes to play a role in bolt-on acquisitions in Europe and support expansion into other international markets through organic growths, notably Southeast Asia.

MCP has not set any particular bolt-on M&A targets, but Gao says the firm's EUR328 million debut fund offers some pointers. "We completed 10 deals in the first fund but we did 22 add-ons. You can imagine how it works," she notes.

This is the third investment from Mandarin Capital Partners II (MCP II), which reached a first close of more than EUR100 million and is working towards a target of EUR400 million. The GP hopes to list Ladurner individually in the future.

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• Topics
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• Mandarin Capital Partners