Advantage exits China’s ESG Holdings

Financial details of the transaction have not been disclosed. AVCJ understands the buyer is an Asia-based private equity firm.

Advantage initially invested ESG in 2012, taking a 70% stake from the founder via the GP’s fourth fund, which closed in 2007 at JPY215 billion ($1.9 billion). Prior owners included Jardine Matheson, which invested in the 1970s and divested the company as a non-core asset in the late 1990s. ESG was founded in 1953 in Hong Kong.

Value-add during the Advantage holding period included an expansion of geographic focus beyond a strong concentration on the Shanghai area and a professionalization of back-office bookkeeping as well as the introduction of new service offerings for new industry segments. This effort included an operational diversification from an initial focus on cleaning-related services into a more comprehensive set of facility maintenance work such as air quality control and mechanical engineering services.

During the past five years, annual revenue and EBITDA have grown at 25% and 31% per year, respectively. The performance coincided with an expansion of the customer base from an early concentration on shopping malls and office buildings to a portfolio including five large Chinese airports, rail stations, hospitals, and Shanghai Disney Resort, where the company employs about 800 people.

Work on the exit began as early as six months ago with an auction process that attracted 30 bidders in the first round. The response was interpreted in part as a response to traction in China’s developing facility services industry, which is projected to grow at about 20% annually across the next 5-10 years.

“When we identified this company for our initial investment, we had a strong conviction that it was well positioned to expand in an industry with a lot of growth potential,” Vivian Zheng, a partner at Advantage, told AVCJ. “That’s part of the reason the company was being chased in the market so much during our exit process. We put a lot of post-acquisition management to transform the company and achieve strong returns for our investors.”

Founded in 1992, Advantage invests a range of sectors with a focus on Japan and opportunistic investment across Asia. It claims to have invested some JPY300 billion in more than 50 companies.

Recent activity includes the close of its fifth Japan-focused mid-market buyout fund at the hard cap of JPY60 billion. It is also currently raising an Asia ex-Japan fund, which launched in mid-2015 and is targeting a corpus of $400 million.

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• Topics
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• Advantage Partners