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IPO weakness drives shift by PE investors

(China Daily)

14:25, November 11, 2011

IBEIJING - As it becomes tougher to exit their investments through IPOs, Chinese private-equity (PE) participants are prioritizing performance improvement and seeking other exit strategies such as secondary buyouts and strategic purchases, according to a report released on Thursday.

Grant Thornton International, a leading accounting and consulting organization, interviewed 144 top PE professionals around the world.

The report said that nearly 44 percent of the respondents now view performance improvement as the main way to drive value, with just 2 percent citing financial engineering as a value driver.

"As the market develops, people will have to think harder about their strategy. In the past, they did well in multiple arbitrage between the public and private markets, but things have changed," the report quoted a Chinese survey respondent as saying.

Grant Thornton China Partner Liu Dongdong, one of the authors of the report, said that PE firms cannot rely on arbitrage in the current environment.

"In China, building value comes down to earnings growth. They need to demonstrate that they have delivered tangible improvements to the business, such as improvements to the performance and strengthening of the management team," said Liu.

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