The Review — 06/11/2014 at 10:52

Europe’s Edmond de Rothschild Takes a Fresh View on Chinese Private Equity

china girl
One of Europe’s oldest financial institutions, Edmond de Rothschild Group, is making waves in China’s private equity market.

The banking arm’s Chinese private equity unit is raising a new euro-denominated second fund to invest in health care, consumer and clean technology companies, LBO Wire reported this morning.

While there’s nothing unusual about the sectors the general partner invests in, the firm’s outlook on how it exits portfolio companies has been forward looking.

Moling Chen, a Shanghai-based partner at the firm, said its primary strategy is finding strategic buyers for shareholdings in portfolio companies of its debut 2009 vintage fund.

The emphasis on trade sales rather than initial public offerings has recently gained traction, especially among China’s smaller private equity firms which have historically sought listings for portfolio companies.

While IPOs of Chinese companies have increased after last year’s slow down, there are still concerns about general partners betting on one exit strategy. Chinese firms are now seeking other exit paths to ensure returns.

Edmond de Rothschild’s link with Europe and overseas markets gives the Chinese private equity unit greater access to potential overseas buyers, said Ms. Chen.

The firm’s exits include the sale of Chinese food distribution company Sinodis to France’s Bongrain SA, a cheese and dairy specialty business; and baby care business Shanghai Elsker for Mother & Baby Co Ltd. to Johnson & Johnson.

“Strategic buyers look at a business’ distribution value, foreign investors especially focus on value. A lot of private equity firms just focus on a company’s bottom-line, but that number doesn’t necessarily represent many things,” she said.

Despite some private equity firms’ shift to buying controlling majority stakes in Chinese companies, such as Bain Capital’s recent investment in a Chinese financial business, Edmond de Rothchild will continue to seek out minority stakes.

“Chinese entrepreneurs want to feel like they’re working for themselves, if they’re a minority [shareholder], then they’re not motivated,” said Ms. Chen.

The Edmond de Rothschild Group was founded in 1953, but can trace its roots back to the Rothschild family which has been involved in financing since the 18th century . One of Rothschild’s most well-known financings was in 1875, when its London branch backed the British government’s stake in the Suez Canal for 4 million pounds.

The Wall Street Journal

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