Independent private equity fund Baring Private Equity Asia has been busy lately, having made three investments in as many months. The fund invests about US$1 billion of its total US$3 billion under management in mainland China. It has made 25 investments here since 1998. Jean Salata, the fund’s CEO, spoke to CHINA ECONOMIC REVIEW about recent investments and strategy.
Q: Does Baring target particular industries? Why did you invest in LCD-screen advertising firm Towona in February?
A: No, we don’t actually focus on particular industries. Towona is in the media industry and this sector has potential because there are a lot of companies that want to reach their customers via advertising. These companies will go to [firms] like Towona. Towona is the leader of that sector.
Q: You also invested in medical instruments company Amsino…
A: Medical consumable equipment is one of the last areas in manufacturing to start outsourcing to China. There’s a big change now with people starting to move their manufacturing and placing their orders for medical equipment in China.
Q: What’s been a good investment?
A: One of our most successful investments recently is in a coking coal company that’s already listed in Hong Kong. It has done very well, we’ve made a lot of money on that investment. I think the industry is growing and benefiting from strong energy demand in China.
Q: Does Baring tend to go for minority stakes in firms or buyouts?
A: We do both. Most of what we do in China, about 70%, is in growth-equity minority stakes. And then about 30% would be in buyouts. Typically, we do management buyouts where we work with the management team to help them acquire the business from a seller.
Q: Is it easier to go for small strategic stakes?
A: I think it’s a better strategy right now for where the opportunities are in China. It’s easier to do and also creates growth, creates more jobs, creates big companies, makes Chinese companies more competitive. There are a lot positive aspects to it.
Q: What management role does Baring seek in portfolio companies?
A: Essentially what we want to do is help the companies become stronger so that they can compete more effectively against either their own competitors in China or against foreign competitors. And to do that you need to grow your scale, you need to get bigger and you need to have the financial resources to have more factories, or more advertising, or better management or to expand geographically into new markets.
Q: What are the management teams at the portfolio companies like?
A: The founders of the companies that we backed have all been very hardworking, motivated and ambitious. One of the key things in working with management teams is that they all want to go public – they all want to do an IPO. So there’s a really strong alignment of interests between what they want and what we want.