Key Findings

　　• 114 disclosed PE deals of USD 18.645 billion were clinched in China, down 28.3% in the deal number and up 75.8% in the deal amount, with the average amount of deals being USD 164 million, posting a 145.3% increase from the previous year

　　• Manufacturing and Energy took the lead by closing 30 and 13 deals respectively

　　• Finance, Chain Store & Franchise, Energy, Food & Beverage and Manufacturing each raked in over USD 1.0 billion, with Finance leading the pack by attracting as much as USD 9.988 billion

　　• Growth Capital did the best in terms of the deal number- 79 deals, while PIPE grew fastest to secure 31 deals

　　• Profitability stage firms obtained a total amount of USD 17.324 billion in 68 deals, ranking first both in the deal number and the amount, but the proportion of expansion-stage deals in the total saw a significant growth

　　• Beijing took the lead both in the deal number and the deal amount, while Inner Mongolia experienced a substantial growth in the deal amount, ranking third

　　• 57 PE deals of USD 2.242 billion were clinched by Chinese institutions, up 42.5% and 150.6% respectively in the deal number and the amount

　　1. Review on 2009 Domestic PE Investment Market

　　In 2009, China’s PE market extended the downward trend seen last year with a reducing number of investment deals. The 114 disclosed PE deals involved a total amount of USD 18.645 billion during this year, down 28.3% in the deal number and up 75.8% in the deal amount, with the average amount of deals being USD 164 million, posting a 145.3% increase compared with last year. According to the annual analysis for 2009, the amount and number of deals peaked in Q2 and Q3 respectively (as shown in Figure 2-1).

　　According to CVSource, ChinaVenture’s online database system, the 114 disclosed PE deals in 2009 were scattered in 16 sectors, with Manufacturing and Energy being the hottest destinations closely followed by Finance, Real Estate and Healthcare (as shown in Table 3-1). In terms of the deal amount, Finance, Chain Store & Franchise, Energy, Food & Beverage and Manufacturing raked in the most, exceeding USD 1 billion in each sector.

　　It is worth mentioning that Finance managed to garner as much as USD 9.988 billion in total, taking the lead by the deal amount.

　　CVSource’s statistical data shows that, out of the 114 disclosed PE deals in 2009, Growth Capital took the lead by the deal number, while PIPE stood out against its peers, experiencing a substantial growth, with 31 PIPE deals involving USD 14.721 billion, an increase of 1.07 and 12.03 times respectively in terms of the deal number and the deal amount from last year.

　　China’s PE investments in 2009 were most active in first-tier cities and eastern coastal areas, such as Beijing, Shanghai, Jiangsu, Guangdong and Zhejiang. The proportion of PE deals for Beijing in the nationwide total increased moderately, accounting for 22.0%, while that for Shanghai declined slightly to 8.8%. In terms of the deal amount, Inner Mongolia had a significant increase, involving USD 966 million, second only to Beijing and Shanghai.

　　In 2009, Chinese institutions continued to rise rapidly both in the deal number and the amount, with 57 deals involving a total amount of USD 2.242 billion, up 42.5% and 150.6% respectively from the previous year. On the other hand, foreign institutions’ investment activity also showed signs of recovery as the USA and European economies bottomed out, with the proportion of the deals involving foreign investors in the total began to rally since the second half of 2009 (as shown in Figure 7-1).

　　2. Analysis by Scale

　　China’s PE market in 2009 extended the downward trend seen last year, with fewer investment deals. This year witnessed a total of 114 disclosed PE deals involving a total amount of USD 18.645 billion, down 28.3% in the deal number and up 75.8% in the deal amount, with the average amount of deals being USD 164 million, posting a 145.3% increase compared with last year. According to the - annual analysis for 2009, the amount and number of deals peaked in Q2 and Q3 respectively (as shown in Figure 2-1).

　　The substantial growth in the total deal amount in 2009 was to a great degree the result of more blockbuster deals exceeding USD 500 million. Most of these big deals were closely related to Government-backed institutions, such as China Investment Corporation and Hopu Investments Management Co., Ltd. 

　　3. Analysis by Sector

　　According to CVSource, ChinaVenture’s online database system, the 114 PE disclosed deals in 2009 were scattered in 16 sectors, with Manufacturing and Energy being the hottest destinations closely followed by Finance, Real Estate and Healthcare (as shown in Table 3-1). In terms of the deal amount, Finance, Chain Store & Franchise, Energy, Food & Beverage and Manufacturing raked in the most, exceeding USD 1 billion in each sector. It is worth mentioning that Finance managed to garner as much as USD 9.988 billion in total, taking the lead by the deal amount.

　　4. Analysis by Type

　　According to CVSource, out of the 114 disclosed PE deals in 2009, Growth Capital witnessed 79 deals of a combined amount of USD 3.033 billion, making up 69.3% of the total number and 16.3% of the total amount respectively, while PIPE saw 31 deal of USD 14.721 billion, posting a 106.7% increase in the deal number and a stunning increase of 12.03 times in the amount from last year. Buyout had only four deals of USD 891 million, down 71.4% and 10.7% respectively from last year.

　　Statistical analysis showed that PIPE experienced the fastest increase in the deal number among the three types of investments in 2009. For example, CCB, Bank of China, Wumart and Mengniu all received capital injections from institutional investors. As for investment institutions, Hopu Investments Management Co., Ltd. was rather active in the secondary securities market, as evidenced in its purchases of H shares in CCB and Bank of China from foreign investors in January and July respectively.

　　5. Analysis by Stage

　　According to ChinaVenture’s statistical data, enterprises at profitability stage remained  the biggest winners both in the number and the amount of PE investments during 2009, snatching 68 deals of USD 17.324 billion in total (as shown in Table 5-1).

　　The proportion of expansion stage investment deals in the nationwide total experienced a substantial growth to 35.1% from 4.3% during the previous year.

 　　6.  Analysis by Region

　　China’s PE investments in 2009 were most active in first-tier cities and eastern coastal areas, such as Beijing, Shanghai, Jiangsu, Guangdong and Zhejiang. The proportion of PE deals for Beijing in the nationwide total increased moderately, accounting for 22.0%, while that for Shanghai declined slightly to 8.8%.

　　In terms of the deal amount, Inner Mongolia had a significant increase, involving USD 966 million, second only to Beijing and Shanghai.
The main reason for the rise in investment amount was, there were more big deals, for example, the capital injection of USD 893 million by COFCO and Hopu Fund into Mengniu, and Gold Stone’s investment of USD 72.55 million into North Heavy Industries Group . With an intensifying competition, PE investment institutions will be more active in prowling for projects in central and western regions. 

　　7. Analysis by Investor

　　In 2009, Chinese institutions continued to rise rapidly both in the deal number and the amount, with 57 deals involving a total amount of USD 2.242 billion, up 42.5% and 150.6% respectively from the previous year.

　　On the other hand, foreign institutions’ investment activity also showed signs of recovery as the USA and European economies bottomed out, with the proportion of the deals involving foreign investors in the total began to rally since the second half of 2009 (as shown in Figure 7-1).

　　8. ChinaVenture’s Insights

　　Generally speaking, three factors will affect China’s PE market in 2010: the supply of PE capitals, the GDP growth and the prospect of domestic secondary securities markets.

　　• GDP growth: China is expected to see a faster GDP growth in 2010 compared with the previous year. According to the World Bank’s forecasts, the growth will be more or less 8.7%, while the Financial Institute at CASS is even more optimistic, putting the figure at 10%. These higher growth expectations will give a strong boost to domestic secondary markets. As a result, 2010 will surely be a golden time for PE investment.

　　• Prospect of domestic secondary securities markets: The development of GEM-listed entities may influence the evolution of China’s PE market during 2010. Listed entities’ viabilities and profitabilities will be closely watched, for higher expectations for their robust growth and huge profitability, without doubt, are among contributing factors to higher premiums of their listings. Furthermore, their viabilities and profitabilities also have a significant impact on PE investment institutions’ ROIs and the further development GEM. The influence of this factor will be proven by the market in the near future.

　　• Supply of funds: Apart for the ample liquidity at home, the liquidity squeeze situation on overseas markets will continue to improve over time. In 2010, RMB funds will have wider access to public and private capitals, while the rallies of secondary securities markets and broader economy in Europe and USA will help in loosening financial constraints for limited partners. Given being more favorable than other countries and regions, the Chinese market is expected to attract more limited partners to invest in China. In a word, 2010 will see much more domestic and foreign investment deals.

　　By sector, Healthcare, Modern Agriculture and Chain Store & Franchise are expected to become investment hotspots in 2010. As the healthcare reform advances, Healthcare will continue to expand rapidly, thus being a focus of attention and interest from institutional investors. In addition, as China shifts from the existing investment-driven economic model to consumption-driven one, Chain Store & Franchise will also become a hotspot for PE investment.