Q&A: Eurazeo's Eddie Chen

Q: What are the main functions of the Shanghai office?

A: There are three parts. First, and we help them expand in Asia through M&A. Second, we look at cross-border deals that have an Asian angle and then partner with other private equity firms in the region to make investments. Third, we look at making direct investments in China from our global fund.

Q: What are the main challenges for non-Asian companies looking to expand in China?

A: About 80% of our portfolio companies are from Europe and 20% are from North America, and most of them have some business opportunities in Asia. Even though they might have an expansion plan for China, and the intention is strong, the process is complicated for the management team. It requires more resources, time and local operational support. We identify potential targets for them. We open the door and help a company take its first step into China, and then we continue to support them as they expand through further acquisitions and partnerships.

Q: Can you give an example of how this has worked out?

A: When we invested in Moncler [a manufacturer of luxury clothing and accessories] in 2013, the China business was weak – two retail outlets and a distributor. We agreed with management to accelerate the business strategy in Asia by opening more shops and selling directly, rather than through a distributor. We helped recruit a qualified GM and expand the business in China. In about two years, it went from two stores to about 20. We have helped a number of companies expand in China with businesses involving senior housing, animal food, electric vehicle parts, financial services, and fragrances. The biggest challenge for management teams that have never done business in this market before is implementing the strategy cost-effectively. 

Q: What tends to be the preferred mode of expansion – joint venture, acquisition of greenfield?

A: We have worked with about 10 companies over the last five years and there have been four joint ventures and three acquisitions. We are working on three more acquisitions right now. We focus more on M&A and joint ventures than greenfield. If you have no experience or knowledge of this market, it can be difficult to identify qualified targets for M&A. If you still want to do business here you go greenfield – hire a team, appoint a local manager, set up a distribution office. But it takes a long time to see the results and China is a large and dynamic market. Now we have the skill to evaluate and negotiate joint ventures and M&A, and help consolidate the business after a deal occurs, that is our preferred approach. 

Q: You acquired Worldstrides, a US study abroad business, last year with Primavera Capital Group. How did this partnership come about?

A: We were bidding for the asset and quite late in the process we felt there was a strong China angle because demand for travel education is very high. We decided it would be a good idea to partner with a local private equity firm that had deep knowledge of the education market in order to accelerate growth in China. Primavera came into the picture and took a minority stake. 

Q: Do you get a lot of inbound interest from Chinese GPs?

A: We are constantly talking to local private equity houses and other investment firms. Sometimes we see good deals and we want to bring in minority investors. We might also see a deal within China and be interested in partnering with a PE firm on it. Then there are exits from our European deals – we always receive interest from Chinese private equity firms. We’ve not exited anything to a Chinese group yet. There have been three sale processes that we introduced to Chinese companies. They took part, but they didn’t win.

Q: What general trends have you seen in terms of Chinese investment in Europe?

A: Since last year, Chinese investment in Europe has increased while it has decreased in the US, mainly due to difficulties around protectionism and the trade dispute between China and the US. Germany, the UK, and France tend to be the most favored countries, and maybe Italy as well. 

Q: Several European countries are scrutinizing Chinese investments more closely and there is a proposal for a pan-EU screening framework. What impact could this have on deal flow?

A: Despite what is happening at the EU-level, and in Germany at the country level, my feeling is that European countries are more rational and long-term in their outlook when handling such issues. It just takes time to negotiate. I’m not surprised to see there are concerns, but in my view, it won’t be too disruptive. In the first six months of the year, Chinese investment into Germany was around $1.5 billion, compared to $1.4 billion for France and $1.6 billion for the UK. You can see it’s pretty balanced. The concerns about Germany have not caused investment in the county to fall.  

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• Topics
• Greater China
• Europe
• Investments
• Buyouts
• China
• Europe
• Outbound investment
• M&A
• Eurazeo