China-Focused Private Equity Funds Endure Third Year Of Tough Exit Environment

For China-focused private equity funds, the path to liquidity remained challenging for the third straight year in 2013. A total of 126 exits were recorded last year, down from 2012’s 198 exits and less than half of 2010’s high of 303 exits, according to a report by PricewaterhouseCoopers.

Last year was also the first year that IPO was not the dominant exit route for private equity funds. There were only 35 IPO exits in 2013, down from 2012’s 98 and the high of 2010’s 212 IPO exits.

But IPO activities showed significant recovery in the second half of 2013. Thirty-five Chinese companies backed by private equity firms completed IPOs in 2013, of which 43% went public in the U.S. It was the first time U.S. IPOs outstripped Chinese IPOs since 2008.

Strategic sales, in which a private equity firm sells its stake to a non-financial buyer, remained steady at 85 in 2013, compared with 2012’s 92 exits.

For fundraising, RMB denominated private equity funds declined for the second straight year as the domestic Chinese private equity industry continued to consolidate. RMB private equity funds raised US$13 billion in 2013, down from 2012’s total of US$20.3 billion and 2011’s record US$31.8 billion.

On the contrary, U.S. dollar denominated funds has been consistently healthy in terms of fundraising over the same period. Non-RMB denominated funds raised US$20 billion in 2013, compared with US$21.1 billion in 2012 and US$21.8 billion in 2011.

Within Asia, China’s private equity fundraising activities are becoming more dominant. Between 2003 and 2013, fundraising in the China market totaled US$312 billion. In comparison, Japan-focused funds raised US$75 billion, and India-focused funds raised US$57 billion during the same period.

For new investments, a total of 367 new investment deals were announced last year with deal value of US$35 billion, compared with 2012’s 332 deals with US$23.9 in deal value. But it is still shy of 2011’s high of 502 deals with US$32.6 billion in deal value.

The average deal size for 2013 was around US$95.4 million, reaching its highest level since 2008.

In terms of sector focus, private equity investors in Asia remain enthusiastic about technology, media and telecommunications, healthcare, industrial and consumer related sectors.

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