Deal focus: CITIC Capital gears up global strategy

CITIC also believed that the company had the chance to turn its negligible presence in China into a significant one.

"It's easy to go into a deal like Stackpole, see that there's no revenue in China and overlook it as an opportunity," says Boon Chew, a senior managing director at the firm. "Being able to go into a situation like that, pre-ownership, do the diligence on the China side, walk into an empty factory with 30 employees and negative EBITDA, and to understand and value that opportunity appropriately, is really important."

CITIC and Crestview's bet had now paid off, with the sale of Stackpole to Hong Kong-based electro-mechanical motor producer Johnson Electric for C$867 million ($659 million). It will use Stackpole's technology to enhance its own line of electric motors, motion subsystems and other products for the automotive industry.

In its short time holding Stackpole, CITIC put several initiatives in place to develop the China business. One of the earliest was to leverage its contacts to position and promote the company properly, particularly in its relations with local governments.

"For the technology and knowhow that Stackpole brings to the table, there is a strong incentive for people to want Stackpole to locate their factories where they are, and the ability to leverage that is important," Chew says. The firm also helped Stackpole negotiate with the government for better terms on its lease and tax benefits.

From 35 employees at the time of acquisition, the company's China team has now tripled in size. CITIC supported efforts to outbid multinational companies for local managerial talent.

While these changes were underway, the situation developed more quickly than the firms had expected. Strategic investors had already begun approaching Stackpole a year into the investment, and with so many inquiries from within Asia, CITIC's experience proved essential in separating the serious offers from the less credible.

CITIC sees the Stackpole exit as an indicator of the growing desire among Chinese strategic investors for exposure to high-performing foreign companies. Given CITIC's globally focused strategy, that is a demand that the firm is uniquely positioned to meet.

"I view the China exit as a nice byproduct of us finding companies in the US that have relevance in China, and then growing the top line and the footprint," Chew says. "If you do all those things well, Chinese strategics will come knocking, because it's a great asset, and it could be a good fit for them."

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• Topics
• Exits
• Greater China
• North America
• Industrials
• automobiles
• manufacturing
• China
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• CITIC Capital