Mandarin Capital Nears First Close of EUR1B Fund

The firm could finalize the first close by next month, according to a person with knowledge of the firm’s fundraising activity.
Like its predecessor, Mandarin Capital Partners ‘ second fund will invest in mid-market European companies, investing between EUR20 million and EUR40 million in businesses looking to expand from Europe into China or from China into Europe.
Mandarin Capital so far has exited one investment, selling Italian pharmaceuticals company Euticals SpA earlier this year and netting the firm a 47% internal rate of return, Managing Partner Gao Zhen told LBO Wire in April.
Earlier this year, Shanghai-based Mandarin Capital took an equity stake in Dagong Europe Credit Rating Srl, a Chinese ratings agency that expanded into Europe, setting up its European headquarters in Milan. The total investment in the European joint venture from both Mandarin Capital and Dagong was EUR10 million, according to a statement from firm law firm Simmons & Simmons LLP , which worked on the deal.
Other companies in the Mandarin Capital portfolio include Italian concrete equipment supplier Cifa SpA, industrial valve component manufacturer Gasket International SpA, information technology health-care product developer Dedalus SpA and micro-filter manufacturer GVS Group.
The blistering pace of fundraising for Mandarin Capital seems to indicate that limited partners are still confident in the market – and in cross-border opportunities between China and Europe – despite the slowdown in investment in China, and the precarious position of economies across Europe.
Investment in China has slowed in recent months, however. This year, activity declined in the second quarter, with $2.4 billion of deals made, down from $3.4 billion in the first, according to the Centre for Asian Private Equity Research. The same pattern was evident across Asia, with second-quarter deals totaling $7.3 billion, down from $8.1 billion in the first. By contrast, U.S. activity picked up in the second quarter, rising to $19.1 billion from $16.8 billion in the first, according to Dealogic.
Investors hope that any economic improvement will translate into a more buoyant stock market that would help bring public and private valuations back on par, making private deals more attractive to investors again.
In general, the public market has become a thorny issue both within China and abroad, with the valuations of many Chinese-listed companies trading at low multiples, while entrepreneurs continue to demand higher multiples to sell private companies, having yet to adjust their price expectations, said one investor.
Europe’s crisis tops the list of issues, although new worries have also emerged about weakness in other Asian countries. Korea’s industrial output declined in June, while Japan’s Manufacturing Purchasing Manager Index fell last month to the lowest since the Fukushima nuclear disaster.
It’s that instability that a cross-border fund could look to exploit, said one investor familiar with the Asian market.
Indeed, the firm is already looking to expand into Germany, as LBO Wire previously reported. As the economy of Europe’s largest manufacturer begins to soften, it will present deal opportunities for small- and medium-size companies and private equity buyers looking to capitalize their expansion into new markets, said one person with knowledge of the firm’s activities.
Written by Jonathan Shieber