Chinese financial advisers are stealing a march on global investment banks as they use their deep ties with entrepreneurs, venture capital and private equity firms to profit from the country’s red-hot internet industry.
Small shops like China Renaissance, Hina Group and Kilometre Capital Management arranged crucial early-stage financing years ago for then-startup firms that have developed into billion-dollar businesses, Reuters reported.
So far this year boutique advisers have cornered 57 percent of the merger and acquisition fees in the tech sector, up nearly 100 percent from 2014, Thomson Reuters data shows.
As China transforms itself into a more services-oriented economy and the government looks to domestic consumption as a major growth engine, technology startup companies have become the darlings of investors.
China’s tech sector has seen US$25.6 billion of M&A deals so far this year, and is likely to beat its record of US$49.8 billion for the whole of 2014, the news agency said.
Boutique firms are behind the growth of many of these tech companies. Thriving on deep connections, brokering deals between internet entrepreneurs they know personally, the little-known firms are frustrating bankers representing global investment houses, and sector watchers expect their share of business to keep growing.
“We want to beef up our M&A practice because we see that as a big opportunity,” said Fan Bao, founder and chief executive of China Renaissance. “The long-term fundamentals for China’s new-economy companies are looking good.”
Earlier this year, Bao personally brokered the US$6 billion deal between China’s two largest taxi-hailing apps, Didi Dache and Kuaidi Dache, backed by Chinese internet giants Tencent Holdings Ltd. and Alibaba Group Holding Ltd. respectively.
Bao had helped Didi Dache raise US$15 million to help grow its nascent business in 2013, a relationship that paid off when Didi was looking for an adviser for its merger with Kuaidi.
Fees on Chinese tech M&A deals reached an all-time high of US$87.1 million in 2014, compared with US$11.3 million just five years earlier.
While Credit Suisse tops the board with US$8.3 million in China tech M&A fees so far this, China Renaissance ranks second with an estimated US$7.6 million, leading a pack of aggressive, deeply connected domestic players.
“Basically, it’s a small and sticky world of venture capitalists and entrepreneurs who are behind these deals,” the Hong Kong-based head of M&A at a global investment banking firm said.
“There is plenty of money waiting to go in and some of the deals just require bringing the founders together. And boutiques have an edge when it comes to doing that,” the source told Reuters.
In one example, when classified advertising site 58.com Inc agreed to buy a 43.2 percent stake in smaller rival Ganji.com in a deal valued at US$1.6 billion, boutique firm Hina Group advised Ganji.com. China Renaissance worked with a group of selling shareholders in Ganji.com, while Kilometre Capital advised 58.com, the news agency said, citing sources with direct knowledge of the deal.
“The bigger picture here is, you got the best fundamentals for potential M&A that we’ve had for years,” said Robert Partridge, Asia-Pacific private equity leader at consulting firm EY. “These smaller boutique firms are really good at originating deals and getting these marriages consummated.”
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