http://www.youtube.com/watch?v=auwC9Qa7G-U&feature=plcp
In this episode of China Money Network, Huaming Gu, co-founding partner of Baird Capital Partners Asia, talks about his fund's fund raising during the depth of the financial crisis, and how his firm works with small and medium enterprises in China to clean up corporate governance and establish financial discipline, while hoping to achieve nice returns.
Listen to the full-interview in the audio podcast, watch the shortened video version, or read a transcript summary.
Q: First, give us a brief introduction of Baird Capital Partners Asia and your strategy?
A: We are a China-centric growth equity fund that is dedicated to the small end of mid-market. We invest in three sectors: health care, manufacturing and business services, where we have deep knowledge globally.
We look at companies with EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) north of US$2 million. We take significant minority stakes and work with the company to improve the business.
Our current fund has US$75 million under management in China. Globally, we have US$2.4 billion under management and have invested in over 250 companies.
Q: China's private equity industry faces many challenges right now. Many fund managers say that right now is the time for private equity firms to add value. What have you done to deepen your own niche and create value?
A: For us, it's actually a good thing. We never bank on IPOs as our primary exit route. We are more toward building a business for M&A exit. We are very operational intensive. We tend to look for companies that we can help them to make them better. We are investing more into operating expertise to our portfolios, an essential part of our strategy. For example, we add an in-house financial director to a portfolio company and try to put in place financial discipline at the company.
Q: What kind of specific financial discipline do you try to instill in the company?
A: The companies we invest in are smaller companies, which are probably run by an entrepreneur. Often times, they don't have a good financial controller. They probably will have bookkeeper or a cashier.
We go in there to help them to first keep the records straight. We also install the discipline of expenditure, making capital investments and collecting money. Some industries in China are known for longer receivables. We help companies to manage cash flows to support their continued growth.
Q: How do you plan the M&A exit process, and how do you help companies to go through that process?
A: For us, we only invest in those three sectors where Baird understands, part of that is to understand the landscape of those sectors around the global. We have a good mid-market investment banking team where we get market intelligence from. We know who are the potential buyers, in the U.S. or Europe, increasingly they are companies within China.
Q: Your first deal of leading a US$10 million investment was in Frontage Laboratories. What have you done and where is the company now?
A: We invested in Frontage, which is a contract research organization for pharmaceutical and biotech companies in China and the U.S. in 2008. We identified a clear path of value creation. We improved the management team by recruiting a CFO and a sales director, replaced the general manager in China operations. We brought an industry veteran to serve on the board, and helped set strategy. Also, we help them to integrate a small add-on acquisition.
Therefore, we doubled the revenue of the company in the space of three years. We are planning an exit through an M&A transaction right now.
Q: In the three sectors where you invest, where do you see attractive opportunities?
A: We still see lots of opportunity at the small end of the mid-market. Take health care, for example, it has two subsectors: medical services and medical devices. We are looking at a couple more medical services ...
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