Small is beautiful as boutique advisers fuel tech in China
Published 01/05/2015 | 02:30
Boutique Chinese financial advisers are stealing a march on global investment banks as deals pick up speed in the country's red-hot internet industry, turning deep ties to entrepreneurs, venture capital and private equity firms into mounting fees.
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. Those tech firms haven't forgotten the leg-up: boutique advisers banked 57pc of tech merger and acquisition fees so far in 2015, Thomson Reuters data shows, nearly double last year's share.
As China transforms itself into a more services-oriented economy and the government looks to bolster consumer demand, internet and tech startup companies have taken centre-stage, raising billions of dollars from investors.
China's tech sector has seen $25.6bn (€23bn) of M&A deals this year, on pace to beat the record activity of $49.8bn in 2014.
That is offering a growth opportunity for the boutique firms that have grown up alongside new 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 boutique firm China Renaissance.
"The long-term fundamentals for China's new-economy companies are looking good."
Earlier this year, Bao personally brokered the $6bn deal between China's two largest taxi-hailing apps, Didi Dache and Kuaidi Dache, backed by Chinese internet giants Tencent Holdings and Alibaba Group Holding respectively.
Bao had helped Didi Dache raise $15m to help grow its nascent business in 2013 - that initial relationship paid off when Didi was looking for an advisor for its merger with Kuaidi.
"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 person added. The source was not authorised to comment about rivals publicly.
In one example, when classified advertising site 58.com Inc agreed to buy a 43.2pc stake in smaller competitor Ganji.com in a deal valued at $1.6bn, 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, sources with direct knowledge of the deal said.