CITIC, CDH exit early days China SOE buyout

Nanjing Aotecar, a Chinese manufacturer of compressors used in car air-conditioning systems, made two attempts at a Hong Kong public listing - in late 2010 and early 2011, managed DBS and Goldman Sachs, respectively - but was thwarted on both occasions by market volatility. The business was eventually sold to Tianyou Investment, a domestic financial player, in a deal that closed earlier this week. 

According to sources familiar with the situation, the sale delivered a 4x money multiple to CITIC Capital and CDH Investments, which had backed Aotecar since 2007. The private equity firms' path to liquidity would have been significantly bumpier if it wasn't for the fact they were majority shareholders.

"Over the course of our investment we had a dialogue with management over exit options. Management's preference was for an IPO and we tried twice but the market was unfavorable, so in the end we decided to pursue a strategic sale," says Brian Doyle, managing partner at CITIC Capital. "If we didn't have a controlling stake we wouldn't have had that option and ultimately management was supportive of us."

Aotecar was CITIC's second buyout of a Chinese state-owned enterprise (SOE). When negotiations began two years earlier, in 2005, the private equity firm had yet to raise its first fund, so CDH was brought in as a minority co-investor.

Aotecar was founded 10 years earlier by entrepreneur Yonggui Chen, who received start-up capital from Nanjing Lukou Airport and Hong Kong-based Fang Brothers Investments. When the airport decided it wanted to divest the asset, CITIC moved in. As part of a red-chip restructuring that saw the Aotecar's ownership move offshore, CITIC put in $22 million for a 51% stake, while CDH contributed an undisclosed, but smaller, amount for a 39% holding.

"It was a good business but undercapitalized and didn't have the proper focus and support," says Doyle. "We put capital to work, re-invested all the dividends in the company and more than tripled manufacturing capacity during our holding period."

In 2010, Aotecar had a turnover of RMB1.2 billion and RMB148.7 million in net profit. Last year the company cleared 3 million units, equipping more than one quarter of the 11 million vehicles sold in China. 

Tianyou prevailed over a number of prospective domestic and foreign strategic buyers. It is owned by a high net worth individual with an interest in auto parts and the expectation is Aotecar will eventually go public.

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• Topics
• Greater China
• Exits
• Buyout
• Industrials
• manufacturing
• automobiles
• China
• CDH Investments Management
• CITIC Capital
• Exit