Many private equity and venture capital firms in China are opting for an exit route via mergers and acquisitions (M&As), according to a report by the China Securities Journal on Thursday.
These investors, mostly those with a small and medium-sized capital, now favor mergers and acquisitions over an IPO as a means to pocket gains from their investments.
This change is a result of multiple factors, according to Mr. Liu Zhou, chairman of Fortune VC.
The IPO review is becoming stricter and taking longer. New rules for selling shares have dealt out deep cuts to the internal rate of return for these funds.
Also, liquidities available in the stock market are not sufficient enough to match the large quantity of shares being continuously unlocked. The rising valuation is driving up asset prices.
Against this backdrop, more resources are concentrating into large funds, which are mostly backed by influential institutional investors, such as government-backed funds, Fund of Funds, and banks, said Mr. Zhang Zongyou, an investment partner with a capital firm in Shenzhen.
The remaining space for smaller players is squeezed. Many of them find it difficult to obtain funding and risk business closures.
In the domestic private equity and venture capital sectors, five percent of players are doing well and earning 95 percent of the profit, with the heavyweights gaining more and more strength, as commented by Mr. Liu.
Other light and medium-weight players are striving to find a way out. One example is the strategy adopted by Mr. Zhang. Rather than pursuing IPO deals in which high share prices are eroding profits, his firm turned to mergers and acquisitions.
After acquiring an undervalued asset, his firm would upgrade its management, sales, and financial status to bring it to a better level of operation and profitability. Then this asset would be sold to exit the investments.
As the PE and VC sectors undergo further reshuffles, small and medium-sized players should focus on high-quality projects to survive and thrive, as believed by Mr. Liu.
These investors, mostly those with a small and medium-sized capital, now favor mergers and acquisitions over an IPO as a means to pocket gains from their investments.
This change is a result of multiple factors, according to Mr. Liu Zhou, chairman of Fortune VC.
The IPO review is becoming stricter and taking longer. New rules for selling shares have dealt out deep cuts to the internal rate of return for these funds.
Also, liquidities available in the stock market are not sufficient enough to match the large quantity of shares being continuously unlocked. The rising valuation is driving up asset prices.
Against this backdrop, more resources are concentrating into large funds, which are mostly backed by influential institutional investors, such as government-backed funds, Fund of Funds, and banks, said Mr. Zhang Zongyou, an investment partner with a capital firm in Shenzhen.
The remaining space for smaller players is squeezed. Many of them find it difficult to obtain funding and risk business closures.
In the domestic private equity and venture capital sectors, five percent of players are doing well and earning 95 percent of the profit, with the heavyweights gaining more and more strength, as commented by Mr. Liu.
Other light and medium-weight players are striving to find a way out. One example is the strategy adopted by Mr. Zhang. Rather than pursuing IPO deals in which high share prices are eroding profits, his firm turned to mergers and acquisitions.
After acquiring an undervalued asset, his firm would upgrade its management, sales, and financial status to bring it to a better level of operation and profitability. Then this asset would be sold to exit the investments.
As the PE and VC sectors undergo further reshuffles, small and medium-sized players should focus on high-quality projects to survive and thrive, as believed by Mr. Liu.
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