This content is from: Portfolio

China Set to Become "Net Exporter of Capital"

Chinese companies are investing in major European brands with the help of a European private equity firm.

André Loesekrug-Pietri, 39, thinks he has the perfect answer for Chinese investors’ growing appetite for outbound mergers and acquisitions, especially in Europe, as well as for European groups hungry for growth.

Loesekrug-Pietri, who is a dual German and French national, has led the transactions so far and together with two Chinese companies, coinvested in major European brands: high-end resort operator Club Méditerranée of France and high-end audio-visual equipment maker Bang & Olufsen of Denmark.

“We can see China will become a net exporter of capital,” says Loesekrug-Pietri, chairman and managing partner of A Capital, a European private equity firm with offices in Brussels, Beijing and Shanghai. “We can see that Chinese companies going overseas need foreign partners to help them with their foreign investments. Some 73 of Fortune 500 companies are Chinese, but few are international. Most are large domestic companies with little, if any, global experience.”

Loesekrug-Pietri founded A Capital in 2011, and so far has raised a good portion of its targeted €250 million ($309 million) in fundraising, some of which came from China Investment Corp., China’s $400 billion sovereign wealth fund, and some from the Belgian Federal Holding and Investment Company.

Though his firm is only a year old, he has worked with many state-owned and private Chinese companies, chief among them Shanghai-based Fosun International Holdings, with whom A Capital coinvested in the approximately $40 million purchase of a 7.1 percent stake in Club Med in 2010. The two partners later upped their stake to 10 percent by buying more shares in the open market.

Loesekrug-Pietri’s most recent deal was in July, when he and Beijing-based luxury retailer Sparkle Roll Group coinvested in Bang & Olufsen. Together, they purchased a 7.7 percent stake for €25 million, of which A Capital put up 20 percent or €5 million.

The proceeds will help B&O to open more stores in China, where it already has 30 outlets; and new strategic investor Sparkle Roll — which operates dealerships for Rolls Royce, Lamborghini and Bentley in China — will act as a strategic partner. 

It has become essential for most European brands and industrial groups to sell well in China, where at the same time competition is intensifying, says Loesekrug-Pietri, adding that B&O now has Sparkle Roll chairman Qi Jianhong as chairman of a newly created China Advisory Board as a result of its share sale.

According to a Bain & Company study, the Greater China luxury market grew about 30 percent in 2010 to just under $18 billion — nearly tying with Japan as the second-largest market in the world (U.S. remains No. 1 with about $48 billion, says the study, which is the most recent on the global luxury brand sector). Though it is slowing down, luxury sales will still top 20 percent growth in 2012 and remain in the double-digit range in the near- to medium-term future, Bain says.

A Capital’s specialization in the years ahead will be investing in more performing European midcap companies with strong growth potential in China who can benefit from the strategic partnerships and that will help the target companies succeed in China, Loesekrug-Pietri says.

“The deals that we do will foremost be beneficial for the target European companies,” he says. “If it is beneficial, it will be seen as beneficial for shareholders, employees and local communities, and therefore they will be sustainable deals: You will strengthen the European firm by making it successful in what has become an essential market in most industrial and consumer sectors, and won’t end up with a backlash from any stakeholders this way.”

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