Hony eyes buyout opportunities in healthcare, restaurants

Speaking at his firm's annual general meeting in Shanghai, Hony CEO John Zhao noted that the government is deepening industry reforms in order to open up the domestic market and encourage innovation. As such, Hony's approach - previously characterized by minority stakes, local markets and manufacturing businesses - is increasingly focused on services, cross-border strategies and buyouts.

"In the past, we often invested minority stakes in companies. Sometimes we acquired controlling stakes but they were state-owned enterprises (SOEs). We are now going to do more buyout deals, in particular for private companies. Aged entrepreneurs are willing to sell their businesses because of succession issues," Zhao said.

The two sector-focused teams will contribute to the due diligence process and offer post-investment operational services for this new wave of buyout opportunities. The healthcare team, known as Grand Accordia Healthcare, is led by Xiaopeng Zhao, formerly vice principal of Beijing University's Cancer Hospital, who joined Hony last year. He is supported by more than 10 healthcare sector professionals.

Grand Accordia is initially targeting hospital buyouts. A few weeks ago, it made its first investment in Shanghai Yangsi Hospital, the largest privately-owned hospital in Shanghai. This will serve as a platform for the acquisition of 10-15 hospitals in the next three years.

National health expenditure in China reached RMB3.2 trillion ($523 billion) last year. The government is also committed to reforms that will encourage private capital to enter the sector. Hony expects to see rich deal flow from the increasing number of private hospitals that are emerging.

As for restaurant industry opportunities, the objective is consolidation of a highly fragmented market. China's catering industry is worth RMB2.5 trillion and Hony plans to acquire multiple brands and integrate them into a single platform.

The private equity firm's cross-border ambitions are already apparent in its deal flow. Hony has backed Hollywood movie studio STX and a US-based traveling service cloud platform called Deem, and it is in the process of acquiring UK fast food chain Pizza Express. Zhao said the firm will continue to look at overseas companies in food and beverages, apparel, media, healthcare, finance services and logistics, with a view to bringing them into China.

"Last year we were still talking about helping Chinese companies expand overseas. However, they weren't as welcomed as we thought. Now we are only focused on acquiring the best brands overseas and expanding them in China," Zhao said.

Of Hony's fifth US dollar-denominated fund, which closed at $2.35 billion in early 2012, 68% is deployed in services sector investments. Buyouts account for just over half the capital committed, while cross-border deals account for one quarter.

In the past 11 years, the PE firm has been involved in 27 SOE transactions, committing RMB14.6 billion.

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• Topics
• Greater China
• Buyouts
• Healthcare
• Consumer
• China
• Hony Capital
• healthcare
• Consumer
• buyout
• Operating partners