Private Equity Partners China Newsletter Issue: March 2014

PE&VC

IPO

INDUSTRY

PE&VC 

Hopu participates in $2.5b China warehouse investment



Intel invests in three China cloud, big data firms



Sunwin Intelligent Plans to Acquire Golden Highway with RMB1B



CDH Ventures invests in online travel site Lailaihui



Yuyuto Gains RMB45M Investment from Co-win Venture Capital Investment, Infore Capital and Mountain View Capital



2013 Saw Foundation for Development of Angel Investments Preliminarily Formed Hopu participates in $2.5b China warehouse investment 2014-02-19

Hopu Investment Management is part of a consortium that has agreed to invest $2.5 billion in Global Logistic Properties (GLP), a Singapore-listed warehouse operator with interests in China, Japan and Brazil. Other consortium members include Bank of China's investment unit, an unnamed Chinese insurance company and other state-owned companies and institutional investors, according to a GLP statement. They will subscribe, via a special purpose vehicle, to around 74.3 million new shares in GLP at S$2.75 apiece for a total consideration of S$204.7 million ($162.3 million). They will also subscribe to 2.1 billion new shares in GLP's China subsidiary, Iowa China Offshore Holdings, paying around $2.35 billion. The consortium will own 1.5% of GLP and 30.3% of the China subsidiary. All of GLP's operations in China will be transferred to the China subsidiary. As of January, these included 500 completed properties in 34 cities representing 8.8 square meters of gross floor area and a further development pipeline of 8.4 million sq m. There is also a land reserve pipeline of 12.2 million sq m. Hopu is participating via an entity called Hopu Logistics Investment Management. Fang Fenglei, the private equity firm's chairman, will join the GLP board.

Private Equity Partners Via degli Omenoni, 2 - 20121 Milan, Italy

Private Equity Partners China Unit 2809, 166 East Lu Jia Zui Road, 200120 Shanghai, China

Fang set up Hopu in 2007 with Richard Ong, now of RRJ Management, and they raised a debut fund of $2.5 billion. The firm made a string of high-profile investments but disbanded in late 2010 amid reports that the two principals could not get along. Fang was said to be seeking at least $2 billion for a new vehicle, Hopu Master Fund II, with $1 billion committed as of May 2013. GLP describes Hopu as being backed by China's largest state-owned enterprises and institutional investors. Last November, Hopu participated in a HK$1.6 billion ($213 million) investment in Chinese dairy firm Yashili International. GLP, which counts GIC Private as its single largest investor, has a $16.9 billion property portfolio comprising 23.4 million sq m. It expects to see robust demand for logistics space in China driven by rising domestic consumption, urbanization and e-commerce. The company estimates that logistics space per capita in China is one 12th that of the US, with a total market supply of 550 million sq m, of which only about 20% is considered modern. Existing warehouse stock is mostly too small or obsolete and logistics cost as a percentage of GDP is more than double that of the US. GLP estimates that by 2029, China's logistics space will cover 2.4 billion sq m, by which point logistics space per capita will be one third that of the US. The overall market will be worth $2.5 trillion. In November 2013, GLP announced the $3 billion China Logistics Fund, which as of this month was already 86% allocated.

Intel invests in three China cloud, big data firms 2014-02-19 Intel Capital, the corporate investment arm of the US chipmaker Intel Corp, has invested in three Chinese tech start-ups: big data firm Shanghai Yeapoo Information Technology; cloud storage provider Tianjin Zhongke BlueWhale Information Technology; and cloud-based IT solutions company Wuxi China Cloud Technology Service. Financial details of the transactions were not disclosed. Yeapoo helps Chinese businesses build websites specifically for mobile devices and offers ways for to market their online services and analyze customer data. BlueWhale provides network storage products, while cloud infrastructure provider Wuxi China Cloud operates a network of servers in data centers across the country.

Private Equity Partners Via degli Omenoni, 2 - 20121 Milan, Italy

Private Equity Partners China Unit 2809, 166 East Lu Jia Zui Road, 200120 Shanghai, China

The investments coincide with the rapid growth of Intel's server business in China, which has witnessed double-digit growth over the last five years. The demand for online storage has also ballooned as the nation's companies and municipal governments increasingly gear their services towards the internet and mobile devices. "Cloud computing, big data, and mobile Internet have brought a series of profound changes," said Ian Yang, president of Intel China, in a statement. "We believe our continuous investment in China, our commitment to industrial partners, and our leading position in the HTML5 and WebRTC fields will accelerate the development of China's technology ecosystem and the growth of Chinese start-ups." Since 1998, Intel Capital claims to have invested over S$670 million in more than 110 Chinese technology companies. Its investment focus includes cloud computing, the Internet of Things, mobile computing, new devices and wearable, software and services, and semiconductors. Last month Intel Capital invested an undisclosed sum in Sanjet Technology Corp, a Taiwan-based manufacturer of portable multi-purpose video cameras.

Sunwin Intelligent Plans to Acquire Golden Highway with RMB1B 2014-02-26 Sunwin Intelligent released the Capital Purchase Draft on February 25, in pursuant to which it plans to purchase 100% stocks of Golden Highway with cash and stock. The transaction consideration is RMB990M. Sunwin will issue 79.08 million shares and pay RMB297M to Golden Highway. According to the announcement, founded in August 2001, Golden Highway mainly provides intelligent power grid management products including solutions for power grid informatization and power distribution automation system and power use information collection systems. Natural person Li Junbao with 61.64% stocks of Golden Highway was the dominant shareholder of Golden Highway; Lvneng Investment and its Natural Person Wang Guilan held 13.56% stocks and 11.74% stocks respectively. Li Junbao and Wang Guilan are a couple. In addition to that, the dealer also made business performance promise that net profits after deducting non-recurring gains and losses will reach RMB78M, RMB90M and RMB100M respectively in 2014-2016; and if Golden Highway failed to reach those business performance goals, Li Junbao and Lvneng Investment will make compensation to the listed firm.

Private Equity Partners Via degli Omenoni, 2 - 20121 Milan, Italy

Private Equity Partners China Unit 2809, 166 East Lu Jia Zui Road, 200120 Shanghai, China

CDH Ventures invests in online travel site Lailaihui 2014-02-11 CDH Venture has led a new funding round for Lailaihui, a Chinese backpacker travel service start-up, alongside existing investor Unity Ventures. Transaction details were not disclosed but the investment was said to be about $1 million. Le Kang, the company's founder, said the proceeds will be used to improve after-sales service and launch new travel packages. Launched in September, the online platform offers self-travel packages. The company claims it records approximately RMB10 million ($2 million) in transactions every month. Online tourism is on the rise in China and numerous venture-backed businesses are looking to hitch a ride on the consumer growth trend. According to the China National Tourism Administration, the number of outbound tourists reached 37.9 million in the first five months of 2013, up 17.3% year-on-year. Domestic travelers numbered 998 million in the first quarter, an increase of 14.1%, while domestic tourism revenue reached RMB765.7 billion.

Yuyuto Gains RMB45M Investment from Co-win Venture Capital Investment, Infore Capital and Mountain View Capital 2014-02-26 Recently, HFG China, the only financial adviser of Yuyuto Investment Development Ltd. (Yuyuto for short), helped Yuyuto complete its financing of RMB45M by introducing investments from Co-win Venture Capital Investment, Infore Capital and Mountain View Capital. Integrated with children amusement park operation and high-end mother & baby products sales, Yuyuto is dedicated to creating a children-centered family entertainment consumption platform. Founded in May 2010, the Shanghai-based company also has branches in Beijing, Guangzhou and other cities. Its three main programs cover children amusement park, imitation skating rink for children and high-end mother & baby products monopoly shops. In the three years since its inception, it has opened about one hundred shops in well-known malls and shopping centers of major cities of China. In 2012, it reached a sales volume of over RMB100M, and received three million visits, almost equivalent to that of the Hong Kong Disneyland in the same year. Besides those main programs, its business ranged from sports and early education, handwork interaction, cartoon-themed park to child play. It has built strategic partnerships with leading brands of children products field at home and abroad. Private Equity Partners Via degli Omenoni, 2 - 20121 Milan, Italy

Private Equity Partners China Unit 2809, 166 East Lu Jia Zui Road, 200120 Shanghai, China

2013 Saw Foundation for Development of Angel Investments Preliminarily Formed 2014-02-12 Since the start of angel investment in 2011, China’s angel investment has developed rapidly despite the sluggish financial market over the past two years. In 2013, the PE market was chilling as a whole but angel investment boomed. Thus, the year could be called the turning yea for angel investment. In 2013, the investments of Chinese angel investors hit historical high and the market matured constantly. Relevant policies were released in succession. Internal communication in angel investment circle also reached an unprecedented high. Favorable policies for angel investment kept coming out in 2013: On July 25, 2013, the National Development and Reform Commission released the Guidelines on Strengthening to Financing Services for Small and Micro Businesses to Support the Development of Small and Micro Businesses, which promotes the development of follow-up financing of quality angel investment projects; on October 25, 2013, Premier Li Keqiang presided over an executive meeting of the State Council which focused on promoting reform of business registration system to further reduce entrepreneurial cost and arouse vitality of social investments. In 2013, some local governments also issued guidelines for promoting the development of angel investment, such as the Interim Measures of Jiangsu Province on Administration of Angel Investment Guidance Funds, Interim Measures of Yangzhou on Administration of Angel Investment Guidance Funds, and Interim Measures of the Finance Bureau of Qingdao on Administration of Angel Investment Guidance Funds. In 2013, communication between angel investors in the market was also very active. Representative angel investment alliances constantly emerged, such as Jiangsu Angel Investment Alliance, China Business Angel Association, Guangzhou Development District Angel Investment Alliance, Z-park Angel Investment Association, Z-park Hundred Angel Investors Association and China Young Angel Investor Leader Association. Fundraising Sizes of Angel Investment Funds Tend to Be Smaller In 2013, 30 angel investment funds completed fundraising, up 36.4% year on year, with a total amount of US$383.48M, down 60.3% year on year, and an average amount of US$12.78M. The size of angel investment funds tends to be smaller. This matches with capital size feature of SMEs. By currency, all of the 30 angel investment funds in 2013 were RMB funds. Overseas investors held a wait-and-see attitude towards the investment prospects.

Private Equity Partners Via degli Omenoni, 2 - 20121 Milan, Italy

Private Equity Partners China Unit 2809, 166 East Lu Jia Zui Road, 200120 Shanghai, China

Institutional Investments Slightly Restore; Angel Investments by Institutional Investors Upsurge on General According to statistics of Zero2IPO Research Center, there were 169 angel investments in China during 2013, involving US$201.23M, up 24.3% and 256.5% year on year by number and investment amount respectively. 120 investments were initiated by institutional angels, involving US$148.90M in total, or US$1.24M on average. In 2013, angel investments recovered faster than VC/PE investments. There are two major reasons. First, fundraising and exit channels in PE market shrank seriously. In such a context, some VC institutions extended investments and increased exploitation of early-stage projects. Second, VC investment has been increasingly accepted by China’s wealthy class. According to Hurun Rich List 2013, China had 1.03 million high net worth individuals with assets exceeding RMB10.00M, and the number persons capable of making angel investments was even larger. With the emerging of PE investments in recent years, the wealthy class has increasingly participated in angel investments.

Private Equity Partners Via degli Omenoni, 2 - 20121 Milan, Italy

Private Equity Partners China Unit 2809, 166 East Lu Jia Zui Road, 200120 Shanghai, China

Private Equity Partners Via degli Omenoni, 2 - 20121 Milan, Italy

Private Equity Partners China Unit 2809, 166 East Lu Jia Zui Road, 200120 Shanghai, China

Overview of Angel Investments in Z-park in 2013 In 2013, angel investments mainly concentrated in Beijing and Shanghai. 71 happened in Beijing, with a cumulative amount of US$144.00M, accounting for 42.0% and 71.4% respectively of the total number and total amount of investments. 54 happened in Shanghai, with a cumulative amount of US$34.86M. Statistical data show that, Beijing ranked first in both the number and amount of angel investments. Zero2IPO Research Center holds that the reason lies in two aspects. First, there are altogether 74 active institutional angels in China, among which 27 set up headquarters in Beijing, and the clustering promotes convenience for exploiting investment opportunities in surrounding areas. Second, Z-park is the most eye-catching region for angel investments in Beijing. Z-park is a national innovation demonstration zone and a national center of technology and finance center. It provides a sound entrepreneurial environment and an industrial layout with an emphasis on Internet and IT which are preferred by angel investors. According to incomplete statistics of Zero2IPO Research Center, active institutional angels in Z-park completed financing for eight angel investment funds, with RMB494.00M of proceeds, in 2013. By size, most of the angel investment funds were less than RMB100.00M in 2014, and only two exceeded RMB100.00M. Compared with the average financing size of RMB220.00M among VC funds in 2013, angel investment funds were smaller in size in 2014. Private Equity Partners Via degli Omenoni, 2 - 20121 Milan, Italy

Private Equity Partners China Unit 2809, 166 East Lu Jia Zui Road, 200120 Shanghai, China

As to the source of funding for angel investment funds in Z-park, 28.0% came from individual LPs, 28.0% from companies, 22.0% from FOFs, and only a small percentage came from owned funds of managers. The fundraising channels of angel investment funds are diversified, but the funds basically come from closely cooperative partners and general market funds show no willingness to participate in angel investment funds yet. In terms of aggregate investment, active institutional angels in Z-park made 59 investments amounting to RMB486.00M, with an average size of RMB8.24M. In terms of Industry breakdown, institutional angels in Z-park mostly invested in TMT and other hi-tech fields, especially in Internet and mobile industry, with focus on asset-light industries, because those industries have explosive force, can easily show development progress, and can get follow-up VC/PE investments quickly. 90.9% of institutional angels invested in IT industry in broad sense with emphasis on Internet, wireless Internet and IT companies. 54.5% invested in bio/healthcare with focus on health services, pharmaceutical and health products. 63.6% invested in clean-tech industry with emphasis on environmental protection and new materials. 72.7% invested in service fields with emphasis on entertainment & leisure, and education & training. By contrast, institutional angels in Z-park paid little attention to projects in traditional industries. Only 27.3% of institutions invested in traditional industries.

Private Equity Partners Via degli Omenoni, 2 - 20121 Milan, Italy

Private Equity Partners China Unit 2809, 166 East Lu Jia Zui Road, 200120 Shanghai, China

……………………………………………………………………………………………………………………………… IPO 

Chinese Tech Companies Line up for US IPOs in 2014



Chinese Internet Firms Jump on IPO Bandwagon



Baring Asia-owned Nord Anglia files for $300m IPO Chinese Tech Companies Line up for US IPOs in 2014 2014-02-27

About 15 to 20 companies from China are expected to go public in the United States this year amid restored investor confidence in the nation's companies, a senior executive of the stock exchange in New York said on Wednesday. The new listings from China will mainly be in the health, high-technology and retail sectors. "China has become the third-largest country by the number of companies listed on NYSE Euronext, following the United States and Canada," said David Ethridge, senior vice-president and head of capital markets at NYSE Euronext Inc, which operates equity exchanges around the world. As of Nov 30, 2013, there were 74 Chinese companies listed on the New York Stock Exchange and nine on a smaller subsidiary exchange established specifically for small-capitalization companies. These companies' total market capitalization stood at $1.04 trillion on that date. Ethridge said that China will remain in the top three because of Chinese companies' desire to list on the exchange as well as renewed investor confidence in such listings. Starting in late 2010, the shares of US-listed Chinese companies were targeted by short-sellers. The situation became so serious in the fourth quarter of 2011 that 58 Chinese companies faced the prospect of being delisted in the US. Their share prices recovered slightly in the first half of 2013. In the second half, conditions improved greatly, with the prices of 50 percent of those companies up more than 50 percent year-on-year. Discount online seller Vipshop Holdings Ltd even saw its price increase 369 percent last year. Higher share prices led to renewed confidence among investors. At the same time, Chinese companies became more positive about conducting IPOs in the US. Six Chinese companies listed there last year, raising $720 million, compared with just two IPOs in 2012. Private Equity Partners Via degli Omenoni, 2 - 20121 Milan, Italy

Private Equity Partners China Unit 2809, 166 East Lu Jia Zui Road, 200120 Shanghai, China

That reflected a major decline from 2010, when 34 Chinese companies went public in the US. Global investors are now paying closer attention to the quality of Chinese companies and conducting intensive due diligence. That's in marked contrast to 2010, when almost all Chinese companies were popular, according to a report by the NYSE. The US market is particularly attractive for Chinese Internet companies, and their performances in the capital markets there have been "pretty good", said Ethridge. The six US-listed companies last year were all in the Internet sector. As of the end of 2013, the individual market capitalization of more than half of the Chinese Internet companies listed in US exceeded $1 billion. Chinese companies planning IPOs in the US have become more cautious in choosing banks, accounting firms and law firms for their IPOs, said the report. The micro-blogging site Weibo is reportedly heading for a market listing in New York with a valuation of as much as $8 billion. Nasdaq-listed Sina Corp, which owns 71 percent of Weibo, is looking to raise more than $500 million through the deal, which is expected to take place in the second quarter Jumei.com, an e-commerce company that sells cosmetics, is planning a US IPO and will seek to raise about $500 million. Another e-commerce site, JD.com, recently filed documents indicating plans to raise $1.5 billion in a New York offering. Chinese Internet Firms Jump on IPO Bandwagon 2014-02-12 Two mainland internet firms, Cogobuy and Locojoy, are planning initial public offerings with the aim of raising up to US$400 million combined in a Hong Kong market that is seeing improving sentiment. An easing in the credit squeeze on the mainland is providing added encouragement for the listing candidates, which are also hoping to tap some of the enthusiasm seen for some e-commerce offerings last year.

Private Equity Partners Via degli Omenoni, 2 - 20121 Milan, Italy

Private Equity Partners China Unit 2809, 166 East Lu Jia Zui Road, 200120 Shanghai, China

Cogobuy and Locojoy are following hot on the heels of the mainland's second-largest e-commerce firm JD.com The company, also known as JingDong Mall, has begun marketing for a US$1.5 billion share offering in the United States. Cogobuy, a Shenzhen-based e-commerce operator specialising in sales of electronic components, is looking to raise as much as US$300 million in the second quarter. The company sells products such as integrated circuits from Intel to mainland technology giants such as Lenovo and Huawei. Locojoy, a Beijing-based developer of mobile and web games, plans to raise about US$100 million in its Hong Kong share sale, also targeted for the second quarter. Jones Lang LaSalle said in a report in September last year that the mainland's e-commerce business would exceed US$1 trillion by 2020, making it the world's largest. The value of goods and services purchased online by mainlanders in 2020 will be the equivalent of the world's 16th largest economy, in today's terms. Reflecting this optimism for the sector, shares of Boyaa Interactive International, which raised about US$133 million, rose 14 per cent on their Hong Kong trading debut in November. Mainland games developer Forgame's US$206 million offering delivered a 10 per cent gain to investors when its shares began trading in September. Analysts said confidence in the Hong Kong stock market had improved after last week's sell-offs in regional markets, with investors returning to blue chips, especially financial stocks. An easing in interbank rates on the mainland has also played a role. The one-month Shanghai interbank offered rate dropped to 5.758 per cent yesterday from a recent peak of 7.472 per cent on January 20, when concerns of a cash crunch resurfaced. Despite the recent hype over e-commerce listings, Ken Wong, a portfolio manager at Eastspring Investments, said valuations of publicly traded mainland internet stocks looked "fairly demanding". "Earnings growth in [these] stocks has not expanded substantially, offering little potential upside for long-term investors," Wong said.

Private Equity Partners Via degli Omenoni, 2 - 20121 Milan, Italy

Private Equity Partners China Unit 2809, 166 East Lu Jia Zui Road, 200120 Shanghai, China

Baring Asia-owned Nord Anglia files for $300m IPO 2014-02-19 Nord Anglia Education, a Hong Kong-based school operator with a presence in Asia, the Middle East, Europe and North America, has filed to raise up to $300 million through a US IPO. The company has been majority-owned by Baring Private Equity Asia since 2008. According to a regulatory filing, the proceeds will be used to repay approximately $239 million in debt and partially redeem preference shares held by Baring Asia, as well as for general corporate purposes. The private equity firm, acting through Baring Asia Private Equity Fund III and Fund IV bought UK-listed Nord Anglia through a $379 million take-private transaction. At the time, the majority of the company's business was in Asia, with a high concentration in China. It has since more than tripled in size, entering other markets in Asia and Europe as well as creating a foothold in the Middle East. Through a combination of organic expansion and bolt-on acquisitions - the most recent of which was WCL Group, bought for $222 million in May 2013 to strengthen Nord Anglia's presence in North America and the Middle East - the company now operates 27 schools, teaching children from kindergarten through the end of secondary school, or K-12 level. As of February 2014, Nord Anglia had over 17,000 students and average revenue per student of approximately $26,600 for the 2013 financial year. Parthenon estimates that the 9,000 K-12 premium schools - defined as those charging at least $10,000 per year in fees - teaching primarily English globally generated revenues of around $58 billion in the 2012-2013 academic year. Nord Anglia reported a pro forma loss of $16 million for the year ended August 2013, compared to an actual loss of $37.4 million the previous year. Pro forma revenue came to $323.7 million, up from $274.2 million in 2012, while adjusted EBITDA climbed from $70.2 million in 2012 to $103.4 million last year. Schools in China and Europe accounted for the bulk of revenue, generating 36% and 33.4%, respectively. Credit Suisse, Goldman Sachs and J.P. Morgan are lead underwriters for the offering.

Private Equity Partners Via degli Omenoni, 2 - 20121 Milan, Italy

Private Equity Partners China Unit 2809, 166 East Lu Jia Zui Road, 200120 Shanghai, China

…………………………………………………………………………………………………………………………… INDUSTRY 

Alibaba Launched Tmall International, an E-commerce Site for Overseas Products



Tencent buys 20-pct stake in Dianping



Internet M&As Present Vertical and Horizontal Alliances；BAT M&A Battlefield Expands to Overseas Alibaba Launched Tmall International, an E-commerce Site for Overseas Products 2014-02-24

Chinese e-commerce giant Alibaba Group recently launched Tmall International, a site dedicated for business entities outside China, where overseas brands and merchants can sell their products directly to Chinese online shoppers. The newly launched international platform provides genuine products that are produced or sold in overseas markets. In addition, the platform offers a direct delivery service. Merchants on the platform also offer Chinese language customer service through Alibaba’s instant messaging platform Alitalk, as well as 72-hour shipping, and product return facilities in mainland China. More than 140 foreign merchants from the U.S., U.K., Australia, New Zealand, Japan, South Korea, etc. have settled on the platform, including B2C sites like Bonjour, Strawberrynet, Etmall, Kenko, as well as premium brands, such as Anna Sui and NYR. To prepare for the launch, Tmall International has been recruiting international businesses since July last year. International merchants who want to join the platform have to pay an initial deposit of $25,000 and a yearly fee based on the types of goods they sell. TMall International will also collect a service fee of either 5% or 6% per transaction, depending on the product, according the requirements released by the site. At the current stage, online shoppers can purchase baby products, healthcare products, beauty products and apparel on the site. Tmall International will run independently as a subsidiary of Alibaba, affiliating to the newly established International B2C Department, which also oversees Alibaba’s global shopping arm AliExpress and Taobao Overseas, a unit focused on Southeast Asian market.

Private Equity Partners Via degli Omenoni, 2 - 20121 Milan, Italy

Private Equity Partners China Unit 2809, 166 East Lu Jia Zui Road, 200120 Shanghai, China

Chinese online shoppers’ demands to purchase cheaper and better products outside China surged in recent years, mainly focused on the fields of infant formula and maternal products, foreign-branded cosmetics and luxury goods, among others. The market size for Chinese online Daigou industry, which means buying via overseas contacts through Taobao or other professional buyer agencies and websites, surpassed 70 billion yuan ($11.49 billion) in 2013, according to data released by Alibaba. Tencent buys 20-pct stake in Dianping 2014-02-19 Chinese Internet company Tencent announced on Wednesday that it had purchased a 20-percent stake in the country's lifestyle and group buying website Dianping.com. The two companies will integrate Dianping's content, user base and offline retailer network with Tencent's social communications platforms, such as QQ and Wechat, to build an online-to-offline service, according to a joint statement. The integration will provide users with a better experience of local services. "Dianping will continue to operate independently under the current leadership team," said Zhang Tao, CEO of Dianping. "Dianping will seek an independent initial public offering (IPO) in the future," he said. "Cooperating with Tencent will help us provide better user experience and merchant service capability, accelerating our national expansion, especially in tier three and tier four cities," Zhang said. Tencent also holds an option to purchase an additional 5 percent of Dianping within a year, when the latter launches its IPO overseas, according to a filing to the Hong Kong stock exchange Tencent did not disclose the cost of the transaction, but China Business News reported on Monday that the company had paid 400 million U.S. dollars. Tencent made the announcement after the close of the Hong Kong stock exchange. Tencent shares closed at 582.5 HK dollars (75.2 U.S. dollars), down 0.34 percent on the day.

Private Equity Partners Via degli Omenoni, 2 - 20121 Milan, Italy

Private Equity Partners China Unit 2809, 166 East Lu Jia Zui Road, 200120 Shanghai, China

Dianping provides merchant listing, consumer review, group buying and restaurant reservation services. It had over 90 million monthly active users and more than 30 million reviews covering 2,300 cities by the end of 2013, according to its website. Tencent is actively promoting its mobile payment system on its flagship mobile messaging application Wechat, which has more than 600 million users.

Internet M&As Present Vertical and Horizontal Alliances； BAT M&A Battlefield Expands to Overseas 2014-02-10 Year 2013 was a crucial year for the development of the Internet industry, when several tycoons constantly presented vertical and horizontal alliance and the market landscape was preliminarily established. Within the year, the Internet industry has gone mature gradually, the network service ability has been remarkably promoted, application services have flourished, the overall industrial strength has been further enhanced, forming a horizontally expanding, vertically penetrating and trans-boundary integrative development trend. As the driving force for economic development and social progress, the role of the Internet industry has gradually revealed. Meanwhile, with the mobile Internet and electronic commerce rapidly transforming traditional industries, China’s Internet industry has formally entered into a new round of merger and acquisition tide. On this occasion, Zero2IPO Research Center released the China Internet Mergers & Acquisitions Report 2014, which straightened out and analyzed the macro environment, policy environment, M&A scale, M&A motivation and other factors of China’s Internet industry, and looked to the future Internet M&A market, so as to provide domestic institutions with reference for future investment directions and judgments. According to data of Zero2IPO Research Center, in 2013, there were a total of 317 M&A deals throughout broad Interne industry, including the deals in transaction and already completed, surged by 100.6% on a year-on-year basis; 278 deals that have disclosed the amount involved US$14.35B in all, surged by 164.5% over the same period last year, namely US$5.43B. In particular, there were 294 domestic M&As involving a trading volume of US$13.87B; 16 outbound M&As involved a trading volume of US$298.00M; and only seven inbound M&As involved a trading volume of US$181.00M. The number of M&As in Internet industry accounted for 25.7% of the total of 1,232 M&As in 2013, and the involved trading volume accounted for 15.4% of the aggregate amount of US$93.20B. In this sense, Internet M&As made more contribution in 2013 than the previous years. And the figure is expected to further rise in the near future. Among all 317 broad Internet M&As in 2013, 72 took place in Internet industry, accounting for 22.7% of the yearly total, with US$4.49B involved, 32.4%; 90 were completed in IT industry and involved US$2.03B, accounting for 28.4% and 14.2% of the total; eight were in broadcasting & digital TV industry, accounting for only 2.5% of the total and involving 2.6%, namely US$369.00M; 57 were entertainment & media M&As with Private Equity Partners Via degli Omenoni, 2 - 20121 Milan, Italy

Private Equity Partners China Unit 2809, 166 East Lu Jia Zui Road, 200120 Shanghai, China

US$2.88B involved , accounting for 18.0% and 20.1% of the respective total; 90 took place in telecom & value-added services industry, accounting for 28.4%, with US$4.58B invloved, 31.9% of the aggregate amount. Figure 1 Comparison of M&As in China’s Broad IT Industry in 2009-2013

（Note: Broad IT include Internet, IT, broadcasting & digital TV, entertainment & media, telecom & Value-added services, etc.）

The current M&A market of China's Internet industry mainly presents the following features: I. M&As among Internet Enterprises Generally Involve a 100.0% Equity Innovation and change are eternal themes of Internet industry, and continuous innovation is the way of survival for Internet enterprises. Internet enterprises obtain core technologies through mergers and acquisitions. Compared with traditional industries, they have a higher demand for core technology and market share. Meanwhile, due to the homogenization phenomenon of Internet projects, competition between Internet enterprises is often competition of market share, and Internet enterprises can acquire sufficient market share through mergers and acquisitions; on the other hand, any resource is limited, which is also fit for Internet Private Equity Partners Via degli Omenoni, 2 - 20121 Milan, Italy

Private Equity Partners China Unit 2809, 166 East Lu Jia Zui Road, 200120 Shanghai, China

enterprises, and they can realize competition for Internet resources through mergers and acquisitions as well. For example, as to online video, a segment of the Internet market, video resource is a competition element between Internet enterprises, Baidu’s acquisition of iQIYI is exactly competition for video resources. Based on above analysis, it is clear that 100.0% acquisition can better promote the value of Internet enterprises from technology, market and resource perspectives. Therefore, among M&As of Internet enterprises, it is a common sight that the acquirers gain 100.0% shares of the targets. Of all 317 Internet M&As occurred in 2013, there were 87 deals with 100.0% shares of the targets involved. II. Internet M&As Present Diversification in Business Areas Involved M&Aｓ of Internet enterprises are presenting a diversification phenomenon: Enterprises operating online games can merge or acquire online music, online advertising and other businesses, and Internet enterprises can realize user sharing after M&A, so as to improve their click rates and page views. With diversified operation, risks can be spread, high profit opportunities can be obtained, and enterprises can find new growth points when being unable to growth further. However, most diversified M&Aｓ of Internet enterprises are based on original technologies and users. To expand new areas, utilizing the scale, image and reputation of the enterprise to be merged or acquired on a certain market is of vital importance in the acquirers’ exploration in new business areas. III. Internet Industry Integrates with Upstream and Downstream Industries and Sets Foot in Traditional Industries Internet enterprises’ products and services are not possible without the support of traditional industries, and the businesses of many Internet enterprises mingled with the businesses of traditional industries and they provide convenience and preference offline through online operation and publicity. Nowadays, traditional industries serve as upstream and downstream enterprises of Internet enterprises, and it is just through such vertical M&As that Internet enterprises control their costs, stabilize the quality of their downstream businesses, guaranteeing their stable and rapid business expansion. As to the cultural communication field which had an outstanding performance in 2013, integration with upstream and downstream industries of the industrial chain gradually became a highlight of Internet M&As. Under the background of economic transformation, Internet and culture industries have entered the booming cycle, listed companies of the Internet and culture sectors are frequently seeking trans-boundary M&As. A few acquisitions are horizontal peer acquisitions, and mostly are vertical acquisitions involving upstream and downstream enterprises. The targets are generally distributed in Internet, online game and other cultural industry chains. For example, Huayi Brothers held shares of Jackie Chan Cinema, established Huayi Zone in cooperation with besTV and participated in the establishment of NOWPopcom Movie Channel; LeTV acquired Dongyang Huaer Entertainment Media and realized the extension from channel to content; iQIYI invested to establish a film and television company; Alibaba held shares of Sina Weibo and Amap, revealing that capital

Private Equity Partners Via degli Omenoni, 2 - 20121 Milan, Italy

Private Equity Partners China Unit 2809, 166 East Lu Jia Zui Road, 200120 Shanghai, China

is seeking for building greater negotiation power in relevant industries by breaking through trans-boundary industry chains. IV. Traditional Media Positively Transform into New Media Internet technologies have brought the third industrial revolution and have revolutionary influences on all industries, enterprises, institutions and individuals. Under such background, boundaries between industries have been broken, and the media industry has rapidly integrated with communication, IT and other industries, providing the strategic transformation of traditional media with new opportunities and market space. In terms of media information communication channels, traditional media owns popularity, brand appeal, in-depth content and profound media industry experience, with such strengths, traditional media has significant industrial advantages in the aspect of information communication to the general public, and thus has always been in an absolute leading position in several hundreds of development. However, with the rapid advancing of the informatization in China, such advantages are not superiority any longer. Two policy directions of “actively encourage the integration between traditional media and new media” and “promote cross-region, cross-industry and trans-ownership mergers and reorganizations” were put forward at the Third Plenary Session of the 18th Central Committee of the Communist Party of China, some traditional media have begun to embrace new media since 2012, some state-owned traditional media enterprises have formed media groups on capital level, to acquire online game companies. For example, Phoenix Media respectively contributed RMB310.00M and RMB277.00M to acquire 64.0% of equities in Muhe Network Technology and 55.0% of equities in Douwan Web, Guangdong Guangzhou Daily Media invested RMB450.00M to acquire 100.0% of equities in Advision Media, B-Ray Media invested RMB1.04B to acquire 70.0% of equities in Roaming Valley, Zhejiang Daily Media invested RMB3.50B to acquire 100.0% of equities in Gameabc and CGA.COM.CN and so on. V. Outbound M&As Conducted by China’s Internet Enterprises Become a Highlight In 2013, China’s Internet industry played a leading role in China’s M&A market. With the rise of emerging industries, industrial giants raced to seize the optimum market, extending the flames of war from domestic to global markets. According to statistics, as of December 31, 2013, there were a total of 14 major outbound M&As participated by China’s Internet enterprises, involving nearly US$2.30B. Big acquirers were mainly three Internet giants of China–Baidu, Alibaba and Tencent. Among them, Tencent was the most active in M&As with seven M&As in all; and then came Alibaba, with three outbound M&As in all; Baidu only acquired one overseas enterprise in the same year; Qihoo 360 conducted two deals and Toread one deal. Their investment destinations spread over Asia, Europe, North America and South America, and among them, the United States was the primary investment destination, with ten target companies located there. Table 1 List of Outbound M&As in China’s Internet Industry in 2013

Private Equity Partners Via degli Omenoni, 2 - 20121 Milan, Italy

Private Equity Partners China Unit 2809, 166 East Lu Jia Zui Road, 200120 Shanghai, China

From the above analysis on outbound M&As, it is clear that China’s Internet enterprises have begun their globalization exposure. The mobile Internet remained a key arena of the current round of outbound M&As, nine M&As in mobile Internet field involved mobile game, mobile security, search, social contact and other sectors; while outbound M&As of the E-commerce field were mainly focused on professional vertical fields and online E-commerce, among which, sports and travel were professional vertical E-commerce fields to which China’s enterprises paid special attention. To move towards internationalization, China’s enterprises need to adopt the means of M&A and give priority to capital investment. To expand overseas market, seize new user groups and develop new technologies will be essential strategic measures for Internet enterprises to expand their scales in the future. Private Equity Partners Via degli Omenoni, 2 - 20121 Milan, Italy

Private Equity Partners China Unit 2809, 166 East Lu Jia Zui Road, 200120 Shanghai, China

…………………………………. This newsletter is prepared by Bonnie Su [email protected] …………………………………..

Private Equity Partners Via degli Omenoni, 2 - 20121 Milan, Italy

Private Equity Partners China Unit 2809, 166 East Lu Jia Zui Road, 200120 Shanghai, China