PAG buys majority stake in Chinese dating service Zhenai

It was announced in August that a fund set up by DEA General Aviation Holding – a Shenzhen-listed manufacturer of kitchen appliances and civil aircraft – would partner with other investors to commit RMB2 billion ($301 million) for a 100% interest in Zhenai’s wholly foreign-owned enterprise. The company’s variable interest entity (VIE) would then be removed, facilitating a domestic listing.

The fund – to which Zhenai’s onshore parent company agreed to contribute RMB277 million – would own 51% of Zhenai on completion of the transaction, making DEA General Aviation the ultimate controlling shareholder. New investors and existing investors in Zhenai would hold 22% and 27%, respectively. The deal valued the business at RMB2.74 billion.

According to a disclosure, Zhenai pulled out of the deal in November because its offshore shareholders would not approve it. These shareholders were not identified. Match Group, the dating products division of IAC, invested in the business in 2011 and held a 21% stake as of December 2016. This accounted for the bulk of IAC’s $116.1 million in cost method investments.

Founded in 2005 by Li Song – an investment banker turned entrepreneur who is married to Kathy Xu of Capital Today China Group – Zhenai claims to be the leading online and offline dating and matchmaking business in China. It has more than 140 million registered members and maintains a team of 2,000 trained matchmaking specialists in 57 centers across 37 cities. Li will remain a minority shareholder and board member under PAG’s ownership.

Zhenai expects to generate over RMB1.6 billion in revenue in 2017, up from RMB1.05 billion last year, while net profit is projected to exceed RMB200 million, compared to RMB127.6 million in 2016.

“The company has built a world-class, market-leading business over the past 12 years with a singular focus on providing its customers with differentiated, high-quality online matchmaking and dating services,” said Suining Xiao, partner and chairman for China at PAG, in a statement. He added that the GP will help Zhenai consolidate its leadership position and pursue growth in China and across Asia.

Xiao has been appointed chairman of Zhenai, with Li retaining his board seat and a minority ownership position in the company.

This investment – from PAG’s second pan-Asian fund, which closed at $3.66 billion in December 2015 – is one of several major commitments the firm has made in China’s internet and technology space. It follows the likes of digital music business China Music Corporation (CMC) and fintech player Dashu Finance.

Speaking at the AVCJ Forum in Hong Kong last week, Weijian Shan, chairman and CEO of PAG, said he nearly passed on CMC because the check size was below the firm’s usual minimum deployment requirement. But the bet has paid off with Tencent Holdings purchasing a majority stake in the company last year at a reported valuation of $2.7 billion. PAG remains an investor.

“We almost missed that one because of our policy, so we decided that the tech space in China was too important to ignore even for a buyout firm,” Shan said. “You really have to be very steeped in the tech sector and have people who are knowledgeable to take advantage of those opportunities, but if you do, then the pay-off can be enormous.”

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• Topics
• Greater China
• Buyouts
• Technology
• China
• PAG
• TMT