Unitas buys controlling stake in ZTE subsidiary

"For a control transaction anywhere in the world that is fast," John Lewis, Unitas' chief investment officer, tells AVCJ. "We were well served by the fact that we were able to bring relevant knowledge of China and relevant industrial and operational expertise. We had a team of eight people who were able to move very quickly on the deal."

According to ZTE, the private equity firm has agreed to take an 81% interest in ZNV, pending regulatory approval. Of this, 65% comes from ZTE directly, at a cost of RMB1 billion, with the remainder acquired from ZTE HK, a wholly-owned subsidiary. ZTE HK will retain 9% of the business, while Shenzhen Qunxian Technology, a vehicle controlled by ZNV's management, will continue to own a 10% stake.

The company has two primary business lines: providing systems that monitor telecommunications radio base stations and internet data centers; and developing end-to-end video surveillance systems. Net profit for the nine months to September came to RMB110.6 million, compared to RMB139.7 million for 2011 as a whole.

ZNV's major customers are the Chinese state-owned telecom operators. ZTE was already supplied telecom infrastructure equipment and the operators required mechanisms to gauge the temperature, humidity and power usage of base stations. It was a logical extension of ZTE's business. The video surveillance unit had similar origins: the telecom operators wanted a systems supplier for municipal CCTV projects.

"We approached ZTE in 2010 about this business because it is a good fit for us," Lewis says. "It's an industrial business with established customer relationships in a good growth industry and with strong R&D and engineering teams and R&D depth. At the time, ZTE wasn't interested in selling but they decided quite recently that the business was non-core and undertook a sale process towards the end of 2012."

The sale is part of a wider divestment process by the technology firm. As ZTE noted in its 2011 annual report, the large-scale construction of broadband networks to serve the rapid rollout of mobile internet services is a challenge as much as an opportunity.

On a broader level, Lewis expects to see more of these deals due to a combination of macro factors and the general evolution of corporate China. "As growth in China slows and revenue and profit growth become more challenging, you will see more of these types of activities. They aren't the flavor of the month - it is something that will develop over a number of years - but they are definitely growing in number."

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• Topics
• Buyouts
• Greater China
• Technology
• buyout
• China
• Unitas Capital
• TMT