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Business> Finance
UPDATED: September 14, 2007 NO.38 SEP.20, 2007
Keen on Mature Enterprises
Total capital raised and invested by Chinese venture capitalists reached record highs in the second quarter this year

Zero2IPO Research Center, a subsidiary of renowned Chinese venture capital investment institution Zero2IPO Group, recently published statistical data for the second quarter of 2007. The statistics revealed that the total amount of capital raised and invested by Chinese venture capital (VC) funds reached record highs. Twelve VC institutions successfully raised over $2.35 billion, and 121 enterprises obtained $694 million of financial support from VC institutions, with the amount of capital from both sources far exceeding that of previous quarters.

Slight advantages

Global merger transaction volume skyrocketed by 50 percent to $2.78 trillion in the first half of this year. Some $1.23 trillion, or 44 percent, of the total came from Europe, the Middle East and Africa. During this period, the volume of merger transactions in the United States increased by 37 percent, while that in the Asia-Pacific Region amounted to $353.4 billion.

In China, domestic capital transactions surpassed foreign capital mergers by a slight margin. According to data from M&A Asia, there were 808 published mergers in China in the first half of this year, representing a 20 percent increase over the 674 cases in the same period last year. Domestic mergers contributed a vast majority of the hikes, with the number of cases increasing from 317 in the first half of 2006 to 454 in the first six months this year. However, transactions undertaken by foreign companies and those through privately raised capital did not show any appreciable increase in the past 18 months.

The published number of overseas acquisitions by domestic enterprises increased from 18 in the first half of last year to 31 in the same period this year, representing an increase of 72 percent. Most of the acquisitions involve mining and metal industries.

"The scope of Chinese enterprises' overseas investment has been expanding, from oil, mining and metal industries to telecommunications and other sectors," said Huang Yaohe, China Enterprise Funding and Acquisition Partner of PricewaterhouseCoopers. "And the amount of transactions is steadily increasing."

Growth capital

As far as the number and amount of investments are concerned, growth capital accounted for the absolute majority and was the main privately raised equity investment practice for the second quarter this year.

Data from Zero2IPO Research Center showed that only 16 mature enterprises obtained VC investment in the second quarter, with a disclosed amount of $155 million. But, from an average investment value perspective, mature enterprises still held an advantage, with the amount hitting $10.33 million. The next level was enterprises in the expansion stage, with the amount of average investment reaching $8.58 million, indicating a marked decrease from $11.26 million in the previous quarter. The average investment in enterprises in the initial stage, standing at $4.38 million, was still the lowest.

The investment style of privately raised equity funds has diversified, with investment strategies covereing growth capital, private investment in public equity (PIPE), mergers, bridging funds, mezzanine capital and real estate investments. In the second quarter this year, there were 31 growth capital investment cases, with the number accounting for 68.9 percent of all the investment cases. The amount of funds involved was $1.02 billion, or 42.3 percent of the total investments.

Outdoor advertising media

In the venture capital market, supported by a huge amount of funds, one investment or merger case followed another in the mature outdoor advertising media sector due to high earnings and payback.

The listing of Focus Media created a pleasantly surprising myth in China's advertising sector. Media companies desiring to recreate the legend acted fervently. Recent reports indicated that Chinese outdoor media advertising company Time Share Media plans to list on the U.S. stock market as early as next year and raise $100-150 million. Digital Media Group (DMG), the first domestic company to develop a rail transit video system, has accelerated its pace of listing.

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