Compared to their US counterparts, European investors have generally been a little more reticent to build a serious presence in China. But that is not the case with Eurazeo, the largest Paris-based listed private equity firm with approximately Eur18 billion ($19.9 billion) under assets. It has a clear vision for growth in the region.
The fund is set to start deploying capital for the first time in February this year. As such, FinanceAsia decided to catch up with Shanghai-based Eddie Chen, head of Eurazeo China (pictured) to find out more about the vision for the fund and where exactly it sees opportunity.
Chen said the investor’s top priority is to bring late-stage companies in the healthcare, retail consumer, commercial services and manufacturing sectors into China.
Right now, for example, Chen’s team is working with one of its portfolio companies, Dorc, to break in. The Netherlands-headquartered company provides equipment for ophthalmic operations. In general Eurazeo’s strategy to support its portfolio companies by helping them acquire or form joint ventures in Asia Pacific that will provide organic growth. A network, if you like.
Typically, Eurazeo aims to take controlling shares in target companies. The holding period is on average five years.
“We are looking for mature companies with potential organic growth,” Chen told FinanceAsia. “The road is too narrow for a purely financial investor; strategic investment is the major trend.”
The target companies that Chen is looking for must have years of top experiences in its vertical sector and need to be profitable. “We can add value to these companies by helping them expand into new markets and to globalise.”
FInanceAsia also understands Eurazeo is also raising a capital fund for a new fund in Europe aiming for a total of Eur1 billion ($1.1 billion). Fundraising will be closed in the first three to six months of 2020. A similar fund on its books previously invested in consumer brands like Moncler and Farfetch. With its Moncler investment, the company made cash multiples of 4.8 times and IRR of 43% in its eight-year investment. Chen didn’t disclose the return on Farfetch investment but said Eurazeo will exit in 2020, four years after its first investment.
The following conversation with Eddie Chen has been edited for brevity and clarity.
Q What is Eurazeo’s 2020 China investment strategy?
A The strategy in 2020 will be a continuation of our previous style. In 2013, Eurazeo opens its first office outside France in Shanghai. It becomes a global consensus that China will continue to grow fast in the next couple of years. Our short-term goal is to help our European projects enter the Chinese market.
There are three methods we may adopt when introducing companies to China. First one is through organic growth. Second, we look for local partners in China and form joint venture companies. Thirdly, we look for acquisition targets for our portfolio companies in China.
As the majority shareholder of our portfolio companies, we obviously believe our companies have great potential [in] China.
Q How is fund structured between Eurazeo, China Investment Corporation and BNP Paribas?
A We are the three cornerstone LPs, and Eurazeo is the fund manager. Currently, three sides contribute about Eur350 to 450 million of the fund capital. We are still negotiating on how to split it between cornerstone LPs. The remaining part will be raised from outside investors.
We are still establishing the precise structure of the fund. The first stage of the fund is mostly our own money, and we will start investing in February. We will finish the fundraising of the rest capital in about six months’ time.
Q What sectors are you focusing right now?
A Currently in China we are focusing on late-stage investment in healthcare, retail consumer, commercial services, internet, and advanced manufacturing.
For example, with Dorc we are keen to build its network in China. Right now, most of its sales come from Europe or the US, but China is a market they would really like to explore. Since we closed the [Dorc] deal last summer, we finished hiring the executives in China in July and started filing for registration with the National Medical Products Administration (formerly the China Food and Drug Administration.
Q What type of company attracts your attention?
A We prefer companies who are already turning a profit, but where there is room for us to help that profit grow. We focus on increasing a company’s multiples and helping with enterprise transformation. So, we prefer mature companies with organic growth potential and, at the same time, are also exploring emerging market names with an aim for globalisation.
Q How many types of fund do you have in Eurazeo?
A We have eight major strategies of investment. The first and largest one is the buyout fund. It is currently deploying its fourth fund, operating about Eur2.5 billion. This is the fund focusing on midsize buyout deals. We also have a small and medium enterprises buyout fund, a growth capital fund, a venture capital fund, and a real estate fund. In addition, Eurazeo also has a fund investing in brands, private debt and a fund of funds.
Correction: FianceAsia has adjusted the potential sum the cornerstone LPs will be committing to the fund. Eurazeo acknowledges it provided partially inaccurate data.
