China GPs highlight role of local partners in cross-border deals

"From a PE fund perspective there are two critical factors in this type of cross-border transaction. The first is having a good joint venture partner with strong local expertise that can give us a jumpstart when we bring technology and brands here," Vivian Lam, managing director at RRJ Management, told the Hong Kong Venture Capital & Private Equity Association's China forum.

The other is building a competent in-house team so the GP is not wholly dependent on the local partner and the joint venture retains a degree of independence.

At the end of last year RRJ secured the Dunkin' Donuts franchise for the majority of Greater China. The private equity firm is committing $120 million to the deal but it is not acting alone. Philippines-based quick service restaurant operator Jollibee Foods Corporation is putting in $180 million and will be responsible for day-to-day operations of the joint venture. The plan is to open about 1,500 stores.

Jollibee operates the largest food network in the Philippines with 2,283 outlets nationwide as of November 2014, but also has 603 restaurants overseas, over half of which are under the Yonghe King noodle shop brand in China.

Sailing Capital, which operates a renminbi-denominated cross-border fund, made its first foray into the US last year with the $137 million acquisition of bankrupt lifestyle products retailer Brookstone. It led the transaction with the support of Chinese conglomerate Sanpower Group and together they will roll-out the Brookstone brand in China. Sanpower already has a sizeable presence in domestic retail.

Michael Weiss, a partner at Sailing, noted that a lot of mid-size companies struggle to create a footprint in China. A private equity firm that can provide the capital and local expertise is therefore a logical partner - although the onus is often on the PE player to prove its usefulness.

"When you are representing local capital and you try to do investments overseas, what is your competitive advantage?" Weiss asked, observing that there is more than enough capital in the market chasing deals. "There has to be some type of synergy there. It is important to quantify that early and establish what the potential is - the synergies and the cost of achieving them."

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• Topics
• Buyouts
• Greater China
• Consumer
• China
• buyout
• Consumer
• Joint Venture
• RRJ Capital
• sailing capital
• Outbound investment