Sequoia's Shen joins China take-private wave
Neil Shen, managing partner at Sequoia Capital China, is supporting take-private bids for budget hotel operator Home Inns and online real estate agency E-House as a growing number of US-listed Chinese companies turn their attention to domestic listings.
Social networking platform Renren, online dating platform Jiayuan and medical device manufacturer Mindray Medical have also announced the receipt of privatization offers in the last 10 days. In each case, the bid is led by a substantial existing investor - usually the chairman and founder - but at this stage no private equity involvement has been disclosed.
Shen is co-founder and co-chairman of Home Inns and holds a minority stake in E-Shang, where he sits on the board alongside CEO Xin Zhou, who is also a member of the bidding consortium. Shen's interests in both companies appear to be personal; they are held by vehicles wholly-owned by him, not Sequoia.
The motivating force in these deals is China's public markets. Since the end of October, the Shanghai Composite Index, the Shenzhen Composite Index and Chinext have gained 115%, 132% and 157%, respectively. Founders and investors want to exploit a perceived valuation arbitrage by listing these businesses domestically, and they are willing to pay a premium to get deals done.
The offer for Home Inns of $32.81 per American Depository Share (ADS) represents a 20% premium to the average closing price during the past 20 trading days and values the business at $1.57 billion. The buyer group already owns about 35% of Home Inns, with Shen holding a 19.1% share, according to the 2014 annual report. Ctrip, a travel-booking platform also co-founded by Shen, is another shareholder and consortium member.
The consortium bidding for E-House is willing to pay $7.38 per share - 25% over the average close for the past 15 trading days - for an overall valuation of $1.04 billion. Zhou and Shen already own 26% of the company between them. Other investors include Sina Corp. and GIC Private.
The offers for Jiayuan, Renren and Mindray value the companies at $239.8 million, $1 billion and $3.5 billion, respectively. Of these, Jiayuan went public most recently and it is the only company still held by one of its pre-IPO VC backers: Qiming Venture Partners had a 13.1% stake as of April.
Private equity firms figure in other take-private transactions currently in process and they may feature in these deals if the consortiums require additional funding. However, if a domestic IPO is the ultimate goal and the companies operate in industries in which foreign participation is restricted, renminbi-denominated funds may well be more logical backers.
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