Saw an article on doing Private Equity purchasing of Chinese companies. The article certainly has implications for private equity anywhere. It is very insightful, and I encourage you all to go see what Sigulegruff says:
Take a look at this
Moreover, there have been few success stories across buyout deals in China. One issue was that that PE funds usually adopted the traditional buyout model, which often entailed overwhelming operational demands that PE managers did not have the expertise to handle. Frequently observed issues included hiring “parachuted” professional managers with little local experience, misaligned economic interests, and ill‐defined roles for the owner/founder of a buyout deal.
However, as the market environment has evolved, buyout transactions in China (at varying degrees of debt and in various forms) have experienced steady growth over the past few years. According to Zero2IPO, the total amount of capital raised by local buyout funds tripled from $849 million in 2012 to $2.5 billion in 2013. In the first half of 2014 alone, total fundraising for buyout funds reached nearly $1.5 billion.
“Parachuted professional managers” is a funny term. Can you imagine that everyone is failing operationally and yet more and more people are buying companies? It is a kind of madness.
Private Equity: A Way Forward
Strategically, a shift is needed. We cannot keep using the same old method. We recommend the following:
Do an HR audit of your buy-out just like you do a financial and legal audit. In this audit, you can check if all labor contracts are up to date. Then check all legal government benefits have been paid. However, that is not the main point. You need someone who can really get the pulse of the business and find out where the operational dangers lurk in the buy-out. It is a matter of heart loyalties and informal control that needs to be dug out.
I was in one buy-out auditing where we found out all the top managers would have no need to work after the buy-out. How would that influence their desire to change styles with a new owner? In this case they replaced all the top leaders. We wish the owners would have taken our advice more completely as they placed the GM. Note Acquisition I below.
Choose a proven trustworthy GM of great leadership ability. He or She should be an expert at gaining the confidence and loyalty of staff. The person should be a good judge of who to trust in China. Furthermore, place a strong operational leader. Do not assume integrity. Most of the operational problems are from the character of the people in the venture that is not understood before the acquisition. Others are due to no good thinking on change management. See Change Management – Sequence of Change Matters.
There is no need for operational failure after your purchase in China. We can help you before and after to have exactly what you need. Then problems that emerge are all more manageable.
You might also like to read: