The pairing of Blackstone and Bright Food in a possible $2.5bn-$3bn bid for US vitamins retailer GNC is a neat illustration of the function of foreign private equity in China. Supporting, rather than leading. And providing intellectual capital, not cash.
A bidder like Bright Food, majority-owned by the municipal government of Shanghai, needs little financial assistance. (Its $1.7bn bid earlier this year for the sugar unit of Australia’s CSR, in a delicious understatement, was “not subject to finance”.) What Blackstone can offer instead is experience in managing consumer products companies. By giving it a small slice of the deal and perhaps a seat on the board, Bright Food can periodically call on its consigliere for advice. As importantly, it can make use of Blackstone’s know-how in cross-border M&A, in what could be China’s biggest-ever outbound deal, eclipsing Lenovo’s $1.25bn purchase of IBM’s PC business six years ago. Left to its own devices, Bright Food has so far proven itself a peculiarly artless and dithering would-be acquirer.
Foreign PE firms have found it hard to crack China. Yes, a handful of them have received permission to raise renminbi-denominated funds, but the closest any foreign firm has got to a truly landmark investment was Goldman Sachs, which acquired a stake in ICBC in 2006 through a PE fund. Otherwise, inbound deals have been small and concentrated at the growth end of the spectrum, in industries deemed encouraging – biotech, clean energy – rather than vital. But who knows: by helping state-owned companies pull off deals overseas, the fortress may, in time, be jemmied open. And when it is, Blackstone – in which China Investment Corporation, the sovereign wealth fund, still holds a 6.3 per cent stake – should be in as good a position as any.
