Bain Capital has raised $3 billion for dealmaking in Asia and sees fintech and healthcare in China among the most promising sectors for investment in the coming years.
The Boston-headquartered private equity firm will start putting its fresh capital to work in the region next year, and is looking for transactions where its experience working with similar companies elsewhere gives it an edge.
“As China transitions to a more service-oriented economy and sectors such as fintech and healthcare become areas for growth – they will require capital and expertise and that’s what we bring,” Stephen Pagliuca, arguably Bain Capital's most prominent managing director, told FinanceAsia.
Bain Capital bought a minority stake in fintech firm China PnR in June. As it works alongside management to grow the firm, the private equity group can draw upon its experience from investing in other fintech companies outside of China such as WorldPay, formerly the credit card processing division of Royal Bank of Scotland, Denmark’s Nets and Italy’s ICBPI.
The US firm has also helped traditional companies such as Chinese electronics retailer Gome adapt to consumers' growing preference to shop online. Bain exited from Gome in January at a small profit. Of around 30 Bain Capital executives in the region around 10 work directly with its portfolio companies to boost earnings.
Bain Capital is not of course the only investor to have spotted these trends. So-called unicorns, venture-capital backed tech startups valued at around $1 billion, are flourishing across the region.
In the technology sector, Chinese smartphone maker Xiaomi has attracted investment from All-Stars Investment, GIC and Hopu among others. Valuations in private rounds of financing skyrocketed across the region earlier this year, according to investors and bankers.
China's healthcare sector is transforming. Consultants at McKinsey forecast state spending will reach $1 trillion by 2020, up from $357 billion in 2011 in an effort to overhaul poor medical products and overcrowded hospitals.
Sequoia Capital, a Silicon Valley-based venture capital firm, teamed up in November with Irish medical equipment manufacturer Medtronic to set up a China-focused medical technology investment fund worth $60 million. Olympus Capital Asia recently invested $40 million in China's Tian Jian Hua Xia Medical, or Tendcare Medical, a private hospital management company, to help fund the company’s expansion programme.
Too much money?
As Bain Capital is not the only one sourcing Asia for transactions. Investors fret that too much private equity money is chasing too few deals in the region, causing valuations to rise. Bain Capital's fund raising follows some other major fund raisings from peers: RRJ gained $4.5 billion and Baring Asia collected $4 billion, Additionally, PAG and Hony are still in the market tapping investors for multi-billion-dollar funds.
Bain Capital has stood by its convictions and been proved right before. When the company raised its second Asian fund in 2012 there was a lot of push back from investors who did not want Japan to be included in the fund’s remit. They argued the country had a declining economy and a business culture often adverse to deal making.
However, the private equity company is among the few funds to have gained momentum investing in Japan. Its latest acquisitions have included Japanese mushroom producer Yukiguni Maitake and hot springs operator Ooedo Onsen. It recently partially exited one of its largest investments in the country to date, telemarketer BellSystem24 and last year IPOed Skylark.
In Asia-Pacific, Bain Capital has the most assets under management in Japan, followed by China and then Australia and India.
Its Asia Fund II was generating an internal rate of return of 13.8% as of September 30 according to one of its investors.
“Japan hasn’t seen many transactions for many years, but now private equity is becoming more accepted … you have to be a long-term player there,” said Pagliuca, whose family moved to Japan for a decade after he graduated high school.
Growing the franchise
Bain Capital has gradually increased the size of its Asian funds. Bain Capital Asia Fund III LP is larger than its second fund, which closed with $2.3 billion of commitments from its investors. Its first Asia fund in 2007 totalled $1 billion.
The firm has closed its fund Bain Capital Asia Fund III LP to investors at its hard cap of $3 billion, above an initial target of $2.5 billion, people familiar with the matter said on Monday. The legal paperwork is still being finalised and a public announcement is due in the coming days, the people said.
That $3 billion excludes any money put up by its own staff. In its latest fund Bain executives have invested more than $250 million, the people familiar with the matter said. Bain’s partners have always been the largest investors in its funds.
Despite widespread concerns among investors over volatile Chinese stock markets and stockpiles of capital yet to be invested in the region, Bain Capital had to scale back allocations for its new fund, the people said. Apart from repeat investors in its funds, the private equity company made room for some local asset managers.
The speed of the fundraising is also noteworthy. The fund has only been capital raising since May and filed with the US Securities and Exchange Commission on July 17. Rivals have in some cases taken much longer, such as in the case of Carlyle's latest Japan fund.
Since 2006 Bain has invested more than $6.3 billion in Asia across 35 deals and realised more than $5 billion for its investors. The latest fund has a mandate to invest across all sectors and will again be focused on Japan, China, Australia and India.
In the last six months it has inked six new deals, worth about $600 million. One potential upcoming IPO exit for the company in 2016 is of IP-based video surveillance firm in China Uniview, or UNV.
It is active via credit affiliate Sankaty Advisors too. It opened an office in Hong Kong in 2014 after striking deals in Australia for several years.
Despite its coming plans for its bigger fund, Bain is not necessarily planning to add personnel in Asia. The firm is already has the biggest headcount per dollar invested of its closest peers.
