China’s Hony Capital is branching out from growth capital and restructuring activity to cross-border deals as China’s M&A activity picks up.Drew WilsonHony Capital’s new strategy involving cross-border investment will be the focus of its latest US dollar-denominated fund, which closed on $2.37 billion late last year after only four months of fundraising.
CEO John Zhao sees cross-border opportunity as domestic companies expand overseas.
“Chinese expertise will play a very important role in addition to capital, which fits into what we do very well,” he said.
China’s overall M&A activity is rising. In 2011, overall (inbound and outbound) M&A activity was up 12 percent to $152 billion from $136 billion the previous year, according to Thomson Reuters data.
Hony’s strategy has two aspects. Outbound investment is aimed at boosting portfolio companies to higher levels of business activity such as overseas expansion or acquisitions.
Hony doesn’t have the foreign market expertise to aggressively go after outbound deals, Zhao admitted, and he doesn’t intend to gamble on attaining it. When such expertise is needed, he’ll turn to his international LP base to facilitate partnerships and deals.
“Even though we’re doing [cross-border deals], we’re still clearly a country manager,” he said.
A second aspect of the strategy – inbound cross-border – is helping foreign companies develop inside China.
“Doing business right in China is still a learning process for many foreign companies,” Zhao explained. “We’d like to work with them, help establish their local operations by becoming an equity partner.”