By Sonja Cheung
Advisory firm PricewaterhouseCoopers is forecasting an increase of private equity and venture capital fundraising and deal flow in China during 2014.
Fundraising will “significantly rebound” this year following the resumption of domestic initial public offerings, PwC writes in its latest private equity outlook. With the exception of 2009, 2013 was the worst year since 2007 for private equity fundraising in the region, with just $33.1 billion raised, compared to $45.4 billion a year earlier.
PwC is similarly optimistic that investments, which increased in both volume and value between 2012 and 2013, will continue to rise, with an uptick in buyouts rather than minority stakes which have traditionally dominated deal making in China. Buyouts have slowly proliferated with the emergence of such shops as Lunar Capital, which only buy majority shares in portfolio companies, and as entrepreneurs have become more willing to release control over their businesses.
The grim economic data emerging from China earlier this week may also serve to bolster investment in the region given the contrarian nature of many private equity investors.
PwC also predicts an increase in outbound private equity deals and some interest in investing in China’s state-owned enterprises.
Some general partners are still slightly skeptical about how easy it will be for managers to offload investments via an IPO given the pipeline of businesses still waiting to list and new offering regulations.
Scott Chen, a managing director at TPG Capital, said at the Private Equity International conference this week that China’s IPO market is still “extremely challenging.”
The number of PE-backed IPOs dropped more than 60% between 2012 and 2013, and remained well off a peak level in 2010 when some 212 companies debuted.
The lack of IPOs in China over the last 14-months has had a detrimental effect on both yuan- and dollar-managers investing in China, creating a substantial overhang of new investments as the number of exits declined for the third year running. A lack of capital flowing back to limited partners in turn constrains the amount those investors can commit to new fund offerings.
