AVCJ China Awards: PE professional of the Year – Homer Sun

"Hi-24 entails a classic buyout arrangement of equitizing management to better align incentives with shareholders. Management, in turn, look to us to provide a level of support to growth the business that they wouldn't have otherwise received as a non-core operation of their prior parent company," says Homer Sun, MSPEA's CIO.

The private equity unit spent three years building relations with Hi-24's management before acquiring the business from China Financial Services Holding as an exclusive purchaser. It now plans to double the number of stores from 200 to 400.

"Beijing has about 500 branded convenience stores, compared to Shanghai's 5,000," says Sun. "This relatively low level of penetration positions us well to drive strategic value by expanding on what is already the largest convenience store chain in Beijing."

Sun expects to see even more buyout deals in the future - through corporate divestments, shareholders restructurings or generational changes - but he believes they will remain fewer in number than minority transactions.

As for China take-privates, these are attractive at certain points in market cycles, as MSPEA knows from experience: in 2009 Sun led the privatization of Singapore-listed Sihuan Pharmaceutical and took the company public in Hong Kong 11 months later.

Sihuan is also an example of how MSPEA has broadened its sector focus to incorporate areas such as healthcare and agriculture. Traditionally, consumer goods featured most prominently but as valuations increased with consolidation, the PE unit began to look elsewhere.

"The industries we are spending time on increasingly highlight technical barriers to entry versus more traditional branding and distribution models," Sun explains. "We are also seeing more services businesses. For example, we continue to like specialty chemicals and healthcare where we've made four investments in recent years."

Ticket sizes are increasing as companies in China mature and industries consolidate - MPSEA has invested more in the country in the last two years than during the prior six-year period or the 12 years before that. However, Sun stresses that working with quality management teams remains the core tenet of his investment strategy in China.

"Forging aligned, long-term relationships with management is critical to both driving growth and to weathering business cycles," he says.

MSPEA is said to be in the process of raising its fourth pan-regional fund, which has a target of around $1.5 billion. A first close of $750 came towards the end of last year. Sun declined to comment on the issue.

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• Topics
• Performance
• Greater China
• Buyouts
• Morgan Stanley Private Equity Asia
• AVCJ Awards
• buyout