Epiven was asked by a large European third generation family office to look into an opportunity in China for a Western developed high technology product / technology. The technology had been developed in Europe but had not been commercialized due to a lack of a European market. The goal of the project was to define the Chinese market opportunity, define a market entry strategy and obtain strategic partners and / or an investment opportunity.

Key Facts
Highly Dynamic Emerging Industry

The Chinese market will become the largest market in the world for this technology, meaning there were many new entrants in China. This industry stands at the crossroads between a traditional industry and a high-tech industry. The are numerous business models. Many industry leaders may not have sustainable business models, as they are “buying” market share.

Customer Buying Process Opaque

Chinese local Governments form a large proportion of the customer base, implying complex purchase procedures must be followed as well as there being subsidies and grants to navigate.

Define Key Value Creation Steps

Epiven had to define a short term set of actions to capture this value prior to getting strategic partners and investors on board to expand the market in China.

Challenges

There were three challenges Epiven had to overcome for the client:

• Protection of client’s product IPR in China prior to contribution to Chinese partnership

• Compete against Chinese PE investors to source & close a deal

• Post investment Board level management before IPO

Results

Epiven designed and executed a 12-week opportunity assessment program that resulted in (a) understanding the market opportunity, after meeting 20+ Chinese players; (b) found an investment target for our client; (c) structured and negotiated a investment into a leading private Chinese company; (d) worked at Board level to bring the target public in China.

Epiven was asked by a European private equity portfolio company with revenues of more than €2 billion, to help them enter the Chinese market. Market entry into China was one of the two stated strategic goals of their private equity owners when they made the investment.

Key Facts
Immature Chinese Industry Dynamics

The industry was highly fragmented, with no player having greater than 2% market share. The traditional Western business model would not yet work in the market. A local partner was necessary.

Chinese partners did not see value in Western industry players

Due to the exit of a major Western competitor of the client, few Chinese players saw any value in talking to any of the Western players. Epiven had to change the mindset of the owners and senior executives in the target partners.

Valuations were very high, above the range of our client

Due to a series of Chinese PE investments into the sector, valuations were 2x to 3x European valuations. Epiven had to convince our target of the value our client brought to the table that justified our lower valuation multiples.

Challenges

There were several challenges Epiven had to overcome for the client:

• Find a willing target that would accept our client

• Manage the Chinese targets expectations during a change of leadership in the client’s organisation

• Manage the negotiation and transaction process

• Other Western competitors had entered the market unsuccessfully and were exiting the market having invested $40m.

Results

Epiven conducted a project for the client that included (i) analysing the market and defining a market entry strategy, (ii) selecting suitable partners willing to sell an equity stake in the price range of our client, (iii) managing a detailed due diligence of the final target and (iv) managing relations between the parties through an economic downturn.

Epiven was asked by a European family owned business, that dominates their high end luxury industry segment in over 60 countries, to support them in entering the Chinese market by finding a distribution partner.

Key Facts
Address China’s high luxury market

Our client’s products are in the high end luxury segment, with customers ranging from celebrities to royalty. They had the goal to tap into the Chinese luxury market and develop their brand accordingly.

Seek rollout across all China

Many Western brands focus their market entry initially on the larger Chinese cities. Our client sought a distribution partner with a reach throughout the whole country, targeted at the very high end luxury segment.

Distribution partner for Sales and Brand building

Our client wished to generate sales upon market entry in parallel with a brand building exercise. The nature of the product is that it needs to be seen to be believed, requiring a highly trained salesforce that know the product and are representative of the brand.

Challenges

There were numerous challenges Epiven had to overcome for the client:

• Find a partner that understood the Luxury Retail distribution chain and could manage the challenges of a grey market and manage the end Retailers pricing policies to ensure the brand did not suffer from price erosion.

• Partner should have a proven track record working with and building high end Western brands throughout all China, not just in the Top 10 cities.

• Develop and execute a market entry launch that positioned the client’s brand as a luxury brand that justified the price points for the launch products.

Results

Epiven designed a five-month program that resulted in selection of a premiere China distributer with an extensive network into the five-star retail channel all over China. Following a successful launch with the China press, the brand has been positioned in the ultra luxury segment. The experience in China has led our client to the top end of their product portfolio worldwide, where the demands of the China market are a key driver for the global product development and innovation process in the company.

Epiven was asked by a large family office to raise capital from a strategic or financial Chinese investor to support the Chinese growth of one of their companies in the Beverage / Retail industry. The Western investor had built a world class production facility in China and now wanted (i) capital and (ii) local expertise to expand rapidly into the high growth Chinese market.

Key Facts
No cashflow from existing business

The Chinese private equity market is typically for expansion capital for established businesses. This business had unique assets and a unique opportunity but had limited revenues and negative cashflows. Chinese investors have many positive cash flow opportunities available to them.

New investor must be hands on

Any investor should not only bring capital but operational expertise to grow the business. Most private equity General Partnerships do not get involved in the operations of their companies.

Valuation and deal structure negotiations complex

The deal had to value the opportunity as well as the future contributions of both parties fairly. Operational responsibilities of both parties had to be agreed as well as a clear governance structure. A clear mechanism was needed to roll up an offshore and an onshore structure prior to exit.

Challenges

There were numerous challenges Epiven was required to overcome for the client:

• Chinese investors typically invest in proven businesses or proven business models. Our client had been built up a world class asset, but had yet to generate significant revenues.

• Our client wanted the new partner to contribute both capital and expertise.

• The investment had to be structured to allow our client to participate in a future China exit of the China business.

Results

Epiven found a Chinese PE investor willing to meet these criteria. Initial investment agreed was €8.5m. The Chinese General Partner agreed to be interim Chinese CEO until the organisation and business ramped up.
Subsequently, the Chinese business has rolled out a branded Cafe concept in numerous large cities in China.

A major European private equity fund asked Epiven to assist one of its portfolio companies to move its entire manufacturing activities to China. The management team had searched exhaustedly in Europe and parts of Asia and found no suitable partners to transfer its manufacturing technology to. Epiven was asked to find a suitable partner in China who would be good enough to take over the entire manufacturing activities.

Key Facts
No such industry in China

There were no Chinese manufacturers producing these products. Epiven needed to identify competent, high quality manufacturers who could be taught and who would be willing to learn about the new product line.

Technically complex products

These production machines and innovation intensive products have a potentially huge consumer liability attached to poor quality of the product. Epiven had to audit the suppliers’ technical competency throughout its organization, people, and corporate culture to identify hidden future risks.

Large front end CAPEX required

The project required more than €6m CAPEX investment in the first 6 months from the Chinese partner. Epiven needed to persuade the Chinese manufacturer to invest such an amount before a return could be reaped after two years.

Challenges

There were three challenges Epiven was required to overcome for the client:

• To find a world-class Chinese manufacturer who did not already produce these products to manufacture them with equal or better quality to that of the client.

• To persuade the Chinese partners to invest a large amount of CAPEX to develop the new product lines which had forecast limited growth rates in the future.

• To negotiate the transfer of production that would provide a large cost saving and positively impact cash flow.

Results

Epiven designed a seven-month program in two phases for the client, resulting in signing a world class manufacturer to take on the manufacturing activities with fully loaded cost savings of €3m in the subsequent year. Subsequently, within three months of this project, the portfolio company was able to be exited to a financial buyer, providing a handsome return to their shareholders.