China's PE has invested 72.5 billion U.S. dollars over the past six years

In 6 years, private equity funds have invested US$72.5 billion in China. While boosting corporate growth and IPO listing to create wealthy individuals, they have also realized miraculous capital growth. For a time, the "PE" boom of the entire people has emerged. This slick and low-key capitalist participant is now becoming more and more important. We cannot help but ask: What else did they bring about while PE created wealth?

It looks very good. According to the 2012 “Investigation Report on the Impact of Private Equity Funds on China’s Economy and Society” issued by Bain and the European Union Chamber of Commerce in China, it can be seen that China’s private equity investment started in 2006 and reached US$7.3 billion in the same year. In 2009, the low tide brought by the financial crisis was only 8.6 billion. It achieved a record high of 16.1 billion U.S. dollars by returning to 2010 and reaching a new high in 2011. This 6-year private equity fund has brought a total investment of 72.5 billion US dollars for Chinese companies.

Compared with listed companies in the same industry in the country, companies that have acquired private equity funds have performed better in terms of corporate governance. This is what we have been expecting from PE investment.

The survey shows that the growth of job opportunities of companies invested by private equity funds and listed companies is flat (annual growth rate is 8%), but the salary increase of the former is higher. This shows that companies that get investment are more willing to pay high salaries to attract talents.

At the same time, their efforts in R&D investment are also greater. Their R&D investment accounts for about 2% of sales revenue, which is twice as much as listed companies in the same industry. The latter's R&D spending has dropped by about 17% since 2009.

On the other hand, companies that are invested by private equity funds are more profitable and will make more money. The survey shows that the average annual income growth rate of companies invested by private equity funds is about 2.5 times that of listed companies in the same industry (compared with a compound annual growth rate of 34% and 13% for the two years), which is only 3% between 2009 and 2009. The gap (biennial compound annual growth rate of 27% and 24%, respectively) has increased significantly.

This is also true from the point of view of profit. The average annual profit growth rate of companies invested by private equity funds was 50% higher than that of listed companies (the compound annual growth rates for the two years were 21% and 14% respectively). Although the annual growth rate is lower than the 39% in the 2009 report, the difference in profit growth between 2012 and 2012 is still relatively large.

At the same time, companies invested by private equity funds have also become more capable of contributing taxes to the country. The data shows that the companies that were invested in 2007 and 2008 had an annual growth rate of 21% in their tax payment in 2012, which is higher than the 15% increase in listed companies. This result shows that equity investment has brought business expansion and financial consolidation changes to the company.

There is not necessarily a better purely financial investment can not meet the needs of the market more and more, more and more companies hope that PE brings them more funds, but also bring more advanced management experience and more channels.

In our investigation, we found that the vast majority of executives of private equity fund investment companies highly valued the guidance provided by private equity fund companies in improving corporate governance and promoting growth. However, they have different opinions on private equity fund companies in providing operational support. The survey shows that nearly 50% of the respondents believe that private equity funds have “no impact” in helping these companies improve their operations after investing.

Some companies are financing under fame, hoping to take the opportunity to introduce advanced management experience, but business owners are often disappointed, and these capitals do not have any miraculous power behind them—more on their own.

In recent years, such disputes have continued. Zhang Lan, the founder of Qiao Jiangnan, “attacked” its investor, CDH Investment, and said that the introduction of Dinghui “was the biggest mistake of South Beauty, meaning nothing,” and said “they have nothing Bring us". In fact, this is only a microcosm and the side highlights the substantial lack of value-added services claimed by the PE industry.

With the formation of the financing buyer's market, enterprises become extremely critical, and prices are no longer sufficient for the project's enthusiasm, and services are competitive; China's PE industry has entered the era of refined management from an extensive development stage. More and more PE agencies began to look for their own strengths to build sustainable competitiveness. One of the latest trends is that PE agencies have started to try full-time post-investment management models, set up independent post-investment management departments, and provide systematic value-added services. This may be the beginning of change.

Spring Water West PE is the industry most sensitive to capital and policies. It has early insight into the investment opportunities in the west. Data shows that nearly 65% ​​of PE investment in the past two years has been invested in headquartered companies in the inland (including western) regions, of which investments in Inner Mongolia, Sichuan, and Chongqing account for half of the inland investment. From the perspective of the industry distribution of the invested companies, they are mainly concentrated on industrial machinery manufacturing (28%) and consumer and retail industries (14%).

Han Weiwen, head of Bain China's private equity fund business, believes that this is also in line with the general trend of China's manufacturing industry in the inland areas in recent years, and inland (mainly in the west) regions, where income and spending power have continued to increase and domestic demand has been boosted.

On the other hand, there is a hard condition that has contributed to this result. While rectifying PE in major cities such as Tianjin and Beijing, the western regions such as Xinjiang, Hubei, Hunan, and Inner Mongolia have reduced the threshold for registration of PE funds and introduced many preferential policies. Taking Xinjiang as an example, the registered capital limit for equity investment enterprises (including company and partnership) is only RMB 30 million, and paid-in capital (first-phase subscription) is not less than RMB 10 million. In terms of taxation, the company’s equity investment enterprises are included in the autonomous region’s support for SME service systems and enjoy various preferential policies for the country’s western development in accordance with the law. Partners in partnership-based equity investment enterprises are paid in accordance with “first-after-tax” income tax. The autonomous region is rewarded with 50% of its local financial contribution.

This facility has attracted a large number of funds to be established in the western region, and enterprises in the western region have also been granted close to the water.

Going forward in the ice and fire Although the era of extreme profits of PE has ended, but the opportunity still exists.

According to statistics, in 2011, a total of 281 Chinese companies were listed on the domestic market, of which 141 were VC/PE-backed enterprises, accounting for half of the total. However, since the second half of 2011, the pace of domestic companies listing in China has slowed down significantly compared with the first half of the year. Except in August and September, the number of listed companies in the country has not exceeded 20 in each month. In 2012, the number of domestic listed companies in the first two months was less than half of the same period of last year. From the perspective of VC/PE support, since October last year, VC/PE-backed domestic listed companies have decreased, but they still occupy a large proportion of listed companies. In 2012, the pace of domestic IPO exits of China's VC/PE institutions has slowed down significantly, and the average book returns have also fallen. This phenomenon has also forced the valuation of the primary market down, and the institutional investment rate has slowed down.

The era of PE's “profiteering” through IPOs has passed, but the survey results also show that China is still one of the most favored investment destinations for private equity funds in the Asian market, and is comparable to mature economies in Asia Pacific regions such as Japan, Australia, and New Zealand. . The transaction volume of private equity funds in China increased from more than 8.5 billion U.S. dollars in 2009 to nearly 16 billion U.S. dollars in 2011 and now accounts for 0.2% of China's gross domestic product (GDP). In Europe and the United States, this share is 0.3. % and 0.5%.