The Chinese Way.The stakes for the world’s largest Chinese-European private equity fund, Mandarin Capital Partners, are climbing higher the more the Eurozone plunges deeper into economic crisis. After purchasing companies in Italy, co-founder Alberto Forchielli is now turning his attention to Germany.
Alberto Forchielli is to splash two-thirds of 1 billion euros, made available by Mandarin Capital Partners private equity fund, to acquire German companies in a bid to fuel world economic growth.
In Shanghai, the Chinese government recently launched a fund of 50 billion Yuan – the equivalent of 6.3 billion euro – with which it aims to purchase overseas companies. Any private equity firm wishing to compete with Mandarin Capital Partners in purchasing Medium Enterprises in Germany, or any other number of companies overseas, will need to rise to the occasion, since the indefatigable Forchielli is back in the game and has raised the stakes very high.
On 20 September 2012, in an exclusive interview, with The Bridge Magazine, Mr Forchielli, the company hunter, was very confident about targeting Germany’s ‘medium-sized firms’ sector. He said:
“We have been the first foreign private equity fund to receive funds from China’s government in 2006, and we have been the first ever China outbound Fund. After six years of operation, we are still the largest Sino-European private equity fund; we have done nine investments; and we expect to earn money from each of them, which is unusual in the private equity industry. We enjoy a strong franchise with current investors, and many more investors, both in China and Europe, would like to join and bring further networking and business opportunities.”
The number one Chinese–Italian private equity fund is buying companies in Germany, not with money from the Eurozone, but from Beijing: this is where their uniqueness lies.
Mandarin Capital Partners’ management team has spotted the missing Sino- European tandem in private equity firms and is ready to exploit that loophole to make a difference in the ‘companies hunting’ sector.
Mandarin Capital Partners helps medium-sized companies to finance themselves towards faster growth. Thanks to capital from the Far East, the pharmaceutical company Euticals quickly took over two companies and acquired a minority stake in a third and fourth.
Forchielli is targeting companies specialising in health, oil, gas, fashion, food and water.The companies should also hold an annual sale that varies between 80 to 200 million euros.
Forchielli told The Bridge Magazine:
“German banks are not a key success factor for us.”
Not only does Mandarin Capital have the money available for the project, but, more importantly, it also has the backing of the Chinese Government.
Buying out firms in the current economic crisis sounds riskily ambitious; nevertheless, this is precisely what Mandarin Capital is currently doing. On Friday 21 September 2012, in his article entitled ‘Boom in going bust fails to arrive – yet’, published under the UK Financial Times Companies & Markets page, the journalist Robin Wigglesworth wrote:
“Standard and Poor’s, the rating agency, has warned that the European banking sector may not be able to meet the needs of Eurozone companies over the next five years… there is still no clear light at the end of the tunnel for many troubled companies across Europe.”
This implies that since Forchielli is hunting German companies on behalf of the People’s Republic of China with Beijing money, there could be no better time than now for Mandarin Capital to grab the opportunity to expand, and thereby create more employment opportunities, which in turn will improve the world economy outlook at a most critical moment.
According to the Financial Times Online Lexicon:
“Rating agencies, or credit rating agencies, evaluate the creditworthiness of organisations that issue debt in public markets. This includes the debts of corporations, non-profit organisations, and governments, as well as “securitised assets” – which are assets that are bundled together and sold as a security to investors.”
It is also fortuitous that one internationally well-known investment of Mandarin Capital is in the European credit rating agency, Dagong. This fund holds 40 percent of the Chinese credit rating agency, which aims to challenge the pre-eminence of that ubiquitous triad: Standard & Poor’s, Moody’s and Fitch.
Mandarin Capital Partners will be founding offices in Germany in 2013, to be located either in Munich or Frankfurt.
Speaking to the German Financial Times on 6 September 2012, Forchielli stressed:
“Mandarin has not lost any money so far. This spring the fund gave the majority from the pharmaceutical company Euticals to the holding company Clessidra. They tripled the initial investment. Now they are preparing the exit from Gasket, a supplier for the oil and gas industry near Bergamo.”
Looking back at an impressive career in the banking sector and prestigious connections with both the Italian and Chinese governments, Forchielli has the perfect profile. He is one of the greatest names the financial arena has ever known. He belongs to a very strong, distinguished and powerful management team of experts and senior analysts assembled together from across Europe and Asia.
Forchielli owes his strategic expertise to 30 years of experience in the international business arena, a decade of which he spent primarily focusing on international business. He started out as Senior Adviser at the Private Sector Development Department of the World Bank, in Washington DC, and then was seconded to the European Investment Bank to manage a portfolio for the Balkans.
President for the Asia Pacific portfolio for Finmeccanica S.p.A. in the early Nineties, Forchielli was then appointed Secretary General for Privatisation at the IRI Group. During the decade prior to these auspicious appointments, he was a Consultant and Managing Partner with the MAC Group.
The charismatic former Harvard Business School graduate has predicted that the Eurozone crisis will get worse. On 6 September 2012, he said to the German Financial Times: “I am convinced that the euro zone will all break apart.”
In China, he is an A list celebrity, and his blog is among the Top Five of the most-read on the news website Caixin, with 200,000 readers.
With Forchielli at the helm, the future looks bright for Mandarin Capital Partners, as well as, in theory – if the auspices of such speculative capitalism are to buck those recent global trends which led to the 2008 financial collapse in the first place, and be harnessed towards creating jobs and growth – for the struggling economies it is investing in.
Indeed, the burning question is: As a private equity fund, what role will Mandarin Capital play in improving the still flatlining economy of the Eurozone?
Dagong is planning to place five to six analysts in Europe, which would suggest there are plans to galvanise the sagging job market in the Eurozone.
According to the Investment Dictionary Online, an analyst is
“A financial professional who has expertise in evaluating investments and puts together “buy”, “sell” and “hold” recommendations for securities”.
It is also important to stress that private equity funds’ core business is to support or actively encourage economic recovery in periods of financial crisis.
Private equity funds identify firms with long-term potential for higher productivity, sales and profits; secure the capital to purchase these firms; and inject additional capital, while improving their strategies and reorganising their operations, in order to achieve higher returns.
This is exactly what Forchielli has already done by buying companies in Northern Italy with the first available funds; and so he is now employing the same mechanism to purchase companies in Germany, with the second funds that have been made available.
The China Development Bank is, furthermore, involved in the Infinity Group and the China-Africa Development Fund.
Dr Robert J. Shapiro, who holds a Ph.D. and M.A. from Harvard, a M.Sc. from the London School of Economics, and an A.B. from the University of Chicago, once wrote in his book published in March 2009, The Role of the Private Equity Sector Promoting Economic Recovery:
“For thirty years preceding this crisis, the private equity sector has achieved notable success in attracting investment and securing strong returns and many of the services could prove very useful in promoting an eventual economic recovery, including its success in identifying firms that, with changes, could achieve higher profits and providing those firms with new capital, advice and expertise, new management, internal reorganization, and strategic acquisitions or sales that increase these firms’ sales and employment. While this record has unfolded over a period of generally strong growth for the American economy, including the recent period of 2003 to 2007, the companies held by private equity firms have generally outperformed”.
The widely published Dr. Shapiro is co-founder and Chairman of Sonecon LLC, an economic advisory firm that provides in-depth analyses and unique insights into changing economic conditions in the United States and around the world.
Sonecon has provided analytical guidance to, among others, Prime Minister Tony Blair, President Bill Clinton, Vice President Albert Gore, President Barak Obama and Senator Hillary Clinton, as well as senior executives of Fortune 100 and Fortune 500 companies, and prominent non-profit organizations who determine U.S. investments in Asian and European companies.
It is therefore relevant to highlight how much Mandarin Capital Partners has been in tune with the core business behaviour which private equity firms recommend. The firm has played a constructive and positive role throughout the current recession and its initial recovery.
There is also some evidence that Mandarin Capital has created jobs for some recovering economies, at a time when employment opportunities across the world economy continue to shrink.
Taking into account Mandarin Capitals’ achievements since the recession so far, it looks as though Forchielli and, consequently, Mandarin Capital, have what it takes to succeed and prosper for decades to come.
As a result, it appears that Mandarin Capital’s accomplishments match the vision of private equity expert Shapiro.
Follow the interview below with co-funder Forchielli to understand why Mandarin Capital would seem to have ‘what it takes’ to succeed, not least, to survive, in the highly competitive arena of the private equity industry, and stay on the chart for some time to come…
1. Is there any specific reason why Mandarin Capital Partners has chosen Germany? Which other country is next in the agenda?
Mandarin Capital Partners deals with investments in advanced manufacturing.There are only three markets for China to shop in: the USA, Japan and Germany.Given our current positioning in Europe, we need to consolidate our positioning in German-speaking countries before moving on to the USA.
2. Investing within the Eurozone is ambitious, perhaps too ambitious one may say, taking into account its stiff regulations and its fiscal policy implications for foreign investors.
a. Why do you think Mandarin Capital Partners can succeed where some foreign investors in pension funds, such as Fidelity Funds, have encountered many difficulties?
The strength of the local team, the integration among the team, our specialized focus on – and skills in – cross-border opportunities and medium-sized companies only.
b. What is your strategy? What makes Mandarin Capital Partners special or unique?
We have been the first foreign private equity fund to receive funds from the Chinese government, in 2006, and we have been the first ever China-outbound Fund. After six years of operations, we are still the largest Sino-European private equity fund. We have made nine investments, and we expect to earn money from each of them, which is unusual in the private equity industry. We enjoy a strong franchise with current investors; and many more investors, both in China and Europe, would like to join us and bring further networking and business opportunities.
3- About the buyout: which criteria do you expect the targeted firms to fulfill?
Great China/Europe, unexploited upside, management already inclined and culturally fit and eager for China/Europe cross-border investment.
4. What is your marketing strategy?
Our uniqueness makes us the only private equity house to go to. We need presence in the press, the digital world and that of the integrated selling approach.
5. How confident and optimistic are you regarding any future partnership between German banks and Mandarin Capital Partners?
German banks are not a key success factor for us.
6. How good do you expect the management of the targeted firms to be?
There is a lot of talent in Germany, a country which understands our unique opportunity and is eager to join.
7. What is next? Is there any Initial public offering in your future plans?
A USA/China cross-border Special Real Estate Fund/RMB Fund.
According to the Financial Times Online Lexicon:
“RMB is a synonym for renminbi, the official currency of the People’s Republic of China. The word “renminbi” means “people’s money.” The monetary value of the renminbi is equivalent to the yuan. When investors speak of an RMB fund, they’re referring to a yuan-denominated fund”.
Mr Forchielli, many thanks for taking time to speak to The Bridge Magazine.