Travel agency Ctrip has teamed up with private equity firm General Atlantic to capture investment opportunities in the fast-growing Chinese tourism sector.
Together they are backing Ocean Link, the first private equity firm focused on the sector, which has gathered $400 million for deals and is looking to raise more capital this year from other investors.
“Both the sector and the private equity investment world in China are becoming very competitive so having a sector focus is critical in identifying opportunities, making the right judgment call and for portfolio management,” Tony Jiang, a partner at Ocean Link, told FinanceAsia in an interview.
China’s tourism sector has grown steadily over the past decade as Chinese nationals increase their travel both in the country and beyond.
“The typical private equity firm shoots for a double-digit return, but we feel that our focus on a high-growth sector means we have a chance of beating that,” Jiang said.
The number of trips made by Chinese residents domestically rose 10.5% to 4 billion in 2015 from a year earlier, while the total number of international journeys by Chinese residents rose 12% to 120 million, according to the China National Tourism Administration earlier this year.
“The travel and tourism sector in China is at a pivotal period of growth,” said James Liang, co-founder, chairman, and chief executive officer of Ctrip.
The number of trips abroad by Chinese residents will double from 120 million in 2015 to 220 million in 2025, according to Goldman Sachs research from November 2015.
Founded in March, Ocean Link is targeting deals across the value chain and sub-verticals of the travel and tourism sector including hotels and resorts, attractions, online and offline travel agencies and operators, transportation services, and related business-solutions providers.
The $400 million is spread across both RMB- and USD-denominated funds, managed accounts and backing from Ctrip and General Atlantic.
Ocean Link has already started putting the capital to work across four deals: the $661 million-privatisation of mobile and online travel agency eLong where it invested alongside Ctrip and others; Mind Education, a provider in China of educational tours and summer camps; $4 million in Joint Wisdom, a data analytics services provider for China’s hotel industry; and 6 million euros ($6.7 million) into Munich-headquartered Ruby Hotels as an initial investment with expansion plans in China and then the rest of Asia.
General Atlantic and Ctrip each have the right to appoint a director to the board of Ocean Link. General Atlantic appointed its China head, Eric Zhang, while Liang represents Ctrip. The other two board members are Jiang and his fellow Ocean Link partner, Alex Zheng. All four have known each other for many years and worked together previously on deals in the sector.
“For many years now we’ve been thinking about what’s the most effective way, the most unique way, to do private equity deals in the sector,” Jiang said.
Ocean Link reunites Zhang and Jiang, two former Carlyle rainmakers who worked together on several hospitality deals in China that generated solid returns. One of the most noteworthy of their deals was Carlyle’s take-private of economy hotel chain 7 Days with Plateno and Sequoia Capital back in 2013.
Jiang noted that although the hotel segment was mature it could be disrupted by emerging players that cater more to chaging consumer needs, which can create investment opportunities. He also noted that leading hoteliers were keen to consolidate their positions and may have need of capital.
