Long before the current private equity bandwagon started to roll, British pioneer 3i was beating a lonely path in this sector by funding unknown start-ups around the world.
In China, the PE boom has yet to achieve the feverish heights achieved in the west and back in 2001, when 3i set up in the country, it was virgin territory.
In six years, 3i has grown to be have remarkable success in the country. It has invested over $250 million in around ten companies including Focus Media, China's largest multi-channel advertising media company, D.Phone, one of China's earliest mobile phone retailers, and the delightfully named Inner Mongolia Little Sheep Catering Chain, China's leading retail hotpot restaurant chain. We wrote about some of 3i's China investments here.
Some of its investee companies, such as Focus Media and Mengniu Dairy have gone to be listed successfully — an IPO is the most common strategy for PE firms to realise their investments. Others have opted for trade sales. Meanwhile, Little Sheep, department store PCD and D.Phone are being prepared for IPOs in the next 12 months.
In this interview with China Daily, 3i's Lily Jin says that the PE firm is looking to invest in four to five Chinese companies this year, investing close to $200m in total. It is spurning the more speculative areas on China's new economy such as dotcom companies to focus instead on high-growth traditional sectors such as branded consumer products, traditional and renewable energy, and affordable real estate.
Jin argues that 3i's strategy of taking minority stakes in investee companies suits China, as the companies are usually young and their founders reluctant to relinquish majority control. In the west, by contrast, much PE activity today is focussed on later-stage companies for which PE firms typically insist on majority control to help turn round the company.
According to Jin, a traditional PE firm like 3i can help investee companies in ways that go beyond the initial investment. She cites the case of Focus Media, in which 3i invested $8m in 2004.
As well as its money, 3i persuaded Eric Rosenkranz, formerly AsiaPac president of Grey Global Group, to join Focus Media so giving the board some mainstream advertising industry experience. Rosenkranz helped shape strategy and took a leading
role in investor roadshows when Focus Media decided to pursue an IPO. In July 2005, Focus Media listed on Nasdaq with an opening market capitalisation of US $700m. More on Focus Media in this EngagingChina story.
At a time when the private equity boom seems in danger of turning into a bubble, 3i seems well placed to ride out any backlash in China or elsewhere by sticking to its knitting.
Separately, Jamie Paton, 3i's co-head of business in Asia, is resigning from the firm after 20 years. Paton moved to Asia in 2000 to establish 3i's business in the region. There is no direct replacement for Paton, whose duties in China will be picked up by his reports Lily Jin, Anna Cheung and Albert Xu.