Summary: Like our Facebook page and follow us now on Twitter @chinamoneypod. For more great episodes, please go to http://www.chinamoneypodcast.com In this episode of China Money Podcast, guest Bob Partridge, managing partner of transaction advisory services at Ernest & Young, explains why it is a good time for overseas institutional investors to invest in China's private equity right now, and what is in store for the industry next year. Listen to the full-interview in the audio podcast, watch the shortened video version, or read a transcript summary. Q: China's private equity industry is in a challenging position right now with a large capital overhang and difficult exit channels. Some are calling for an industry consolidation. What's your view? A: There are a lot of concerns going on in the public markets right now, and that's driving activities on both sides of the deal picture. On exits, there are certainly lower opportunities for private equity to exit. But on investing side, it creates better valuation opportunities. As a result, we are seeing a mixture of expected lower valuations, and the old problem that we always have in this market, that sellers always want to hold out as long as they can before they recognize changes in valuations. But overall, deal volume and fundraising are up, so it's not a bad time to invest in PE in China. Q: How has fundraising and deal volume been? A: In the first quarter, we had a good quarter. The second quarter, fundraising came down on concerns of what RMB funds really mean for the industry. In fact, last year, all the funds raised are unrealistic. The most recent quarter, deal volumes are up 9%. Because we see things before they become public, I can say deal pipelines are very strong. We predict that the third quarter will be up slightly because of the summer months. The fourth quarter, deal volume will continue to go up. Overall, total dollars deal volume will be up in 2012 year-on-year. Q: The somewhat strange phenomenon in the Chinese markets now is that valuations in the public markets are lower than private markets. What does that mean for investors? A: There is lots of insanity out here. It's easy to zero in on some high valuation deals. But a lot of things here aren't as transparent as New York or London. Entrepreneurs expect high valuations, when they hear a public deal getting done at 20-times multiple, for example, they think their company should be worth at least 21 times. So you have mixtures of exaggerated reporting and embellishment of what the real valuations are. But in general, we are seeing valuations are coming down on a historical perspective. Bob Partridge is managing partner of transaction advisory services of Greater China at Ernest & Young. Since 2000, Partridge has assisted many major global and regional private equity firms and multi-national corporations in investing in China. He has led numerous private equity transactions in China, focusing on technology, telecom, financial services and manufacturing sector.
