By Chao Deng
SHANGHAI--Hony Capital Ltd., the Chinese private-equity firm
that is buying London-based restaurant chain PizzaExpress for $1.54
billion in its biggest overseas deal yet, is interested in
investing further in foreign consumer brands so it can build them
up in China.
Hony Chief Executive John Zhao told The Wall Street Journal the
Beijing-based firm isn't changing course on a long-held core
strategy: investing in and helping state-owned enterprises
restructure. But he said Hony now considers cross-border deals to
be "another major drive" of its strategy, as more large Chinese
firms look to internationalize and more international brands seek
to tap into China's growing consumer market.
"China, in the last 20, 30 years, being busy becoming the
world's factory, has not done enough to produce brands, technology,
service that could satisfy domestic requirements," he said. "We
like to acquire and invest in these global brands, bring them to
China and build growing businesses."
Hony Capital is one of China's largest private-equity firms,
with assets of about $7 billion. It has stepped up its overseas
deal making since its first cross-border deal. In 2008, it helped
state-owned construction equipment giant Zoomlion Heavy Industry
Science & Technology Co. purchase Italian equipment maker
Compagnia Italiana Forme Acciaio SpA. Since then, Hony's overseas
investments have included hotels, health care and technology. With
the PizzaExpress purchase, Hony has joined a handful of private
Chinese investment firms that have bought overseas consumer assets
for more than a billion dollars with an eye toward building these
businesses at home.
"We want to make sure that we position ourselves to satisfy
[the] ever increasing consumer demand in China," said Mr. Zhao.
As an example, he cited Hony's collaboration earlier this year
with U.S. buyout firm TPG Capital and movie producers Robert
Simonds and Gigi Pritzker to invest more than $1 billion over five
years in a new Hollywood studio that will make films to be
distributed globally, including in China. He also cited Hony's June
undisclosed investment in Deem, a San Francisco e-commerce firm
Deem.
PizzaExpress has several branches in Beijing, Shanghai and Hong
Kong but plans to expand further in China, under Hony.
Hony wants to build all its investments "around what China
needs," Mr. Zhao said, adding that it sees itself as "a Chinese
investor," not "an international investor," even as it expands it
reach.
While Hony is buying PizzaExpress alone, he said the firm
remains open to co-investing alongside other companies when going
abroad.
He declined to comment on United Biscuits, the British
snack-and-cookie maker that a person familiar with the situation
said Hony is interested in buying.
He did say, however, that one area Hony and other Chinese
players have been interested in is packaged foods, and especially
branded ones. United Biscuits, bought by private-equity firms
Blackstone Group L.P. and PAI for GBP1.6 billion ($2.7 billion)
eight years ago, is still engaging in talks with interested buyers
but is also weighing a year-end initial public offering, The Wall
Street Journal reported in July, citing people familiar with the
matter.
In China, Hony is sticking to investing in state-owned
enterprises and helping them become more market-oriented, a broad
goal that China's policy makers have emphasized. Mr. Zhao said
"easy" investment opportunities into SOEs that were "operating
badly" are gone, leaving SOEs that are in "reasonably good
shape."
The firm's most recent investment in an SOE is a 12.43% stake
worth 3.04 billion yuan ($486.7 million) in Shanghai Jin Jiang
International Hotels (Group) Co., announced by the state-owned
operator of midrange hotels last month.
Buying into large privately-owned firms is "still coming" and it
will take "a bit of time for that sector to become a large sector,"
said Mr. Zhao.
Hony is investing from two funds, a $2.4 billion dollar fund and
a 10 billion yuan-denominated fund. It has no plans for fundraising
yet, as it is about halfway through those two pools, said Mr. Zhao.
He declined to comment on returns.
Hony is backed by Legend Holdings Ltd., a quasi-government
conglomerate that owns Chinese computer maker Lenovo Group Ltd.
Hony is known for a more sophisticated and Western approach to
investing compared with its Chinese peers. Investors in the firm's
private-equity funds include North American pension funds, the Bill
& Melinda Gates Foundation, Goldman Sachs Group Inc. and
China's national Social Security Fund. Mr. Zhao, who is both
Chinese- and Western educated, is an executive vice president at
Legend.
Write to Chao Deng at Chao.Deng@wsj.com
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