PE, VC investors see big returns in M&As

The average investment return from merger and acquisition exits was 2.5 times in the first three quarters of 2013 in China's private equity and venture capital markets, the first time the figure has exceeded that from initial public offering exits, officials of the ChinaVenture Group said on Tuesday.

Average investment returns from IPO exits in China were high in years past, peaking at 14 times in 2011. However, in the first quarter of this year, the return was only about two times, the first time that it was exceeded by M&A exits, said Chen Zhe, chief executive officer of the ChinaVenture Group.

Compared with IPO exits, "the value of investment returns from M&A exits so far this year has been $3.4 billion more", Chen said.

Chen said that a stagnant IPO market and the low concentration of sectors explained the popularity of M&A deals in China.

IPOs in the mainland markets have been suspended for about one year now.

Chen added that there's been a lot of activity in overseas M&A deals by Chinese companies, and one important reason is the appreciation of the yuan.

Jin Jianhua, executive president of the ChinaVenture Group, said that the 2009 launch of the ChiNext market, China's Nasdaq-style market, initially made it possible for VC and PE firms to achieve high investment returns through IPO exits. But conditions changed in the past two to three years.

"The possibility of gaining high returns from pre-IPO deals has become smaller and smaller," said Jin.

Jin said that conditions for raising funds in the Chinese PE and VC markets weren't good. The amount raised in the first 10 months this year fell 6 percent year-on-year.

Also during this period, yuan-dominated funds became more difficult to finance than dollar-denominated ones.

VC and PE investment deals in China decreased 29 percent in the first 10 months, said Jin.

VC investors mainly favor the TMT sector - technology, media and telecoms - while PE firms focus on advanced manufacturing, healthcare, energy conservation and environmental protection, as well as culture and media.

Jin said that in the Chinese PE and VC market, professional institutions would stand out, while those without sound investment achievements would be washed out.

PE and VC firms are also facing tougher competition in China because securities firms, banks, trust companies and listed industrial groups will enter their sphere.

"PE and VC companies should expand their businesses and participate in the pan-asset management sector," he added.