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Great Wall of China

Survey analyses valuation approaches in Chinese PE and VC deals

A study by Deutsche Börse and CMS Hasche Sigle analyses the valuation approaches applied to private sector investments in Chinese companies.

This is the second joint study on private equity in China. It is to be presented at the German Equity Forum in Frankfurt on Monday.

“Our study confirms that the valuation standards developed in western markets cannot automatically be applied to companies in China, as factors such as due diligence play a major role in addition to key financial figures,” says Volker Potthoff of CMS Hasche Sigle. “PE/VC investors have also adapted the sectoral focus to the changed macroeconomic conditions in recent years. They now focus less on export-dependent sectors and much more on those geared to China's domestic market, for example in the consumer goods industry or the healthcare market.”

The study was based on interviews conducted with European investors and Chinese managers of PE/VC funds. It also used the results of the Zero2IPO research platform in the trend analysis of investment allocations in sectors and currencies. The study also includes investigations by the auditing group BDO, which is experienced in international standards.

The findings of the study also indicate that the general conditions for Chinese private sector investments have changed due to a less dynamic growth phase. PE/VC investors have become more cautious, particularly in valuing target companies. Moreover, consolidation in the PE/VC sector is expected in the medium term.

“We hope that our study helps to create more transparency and better understanding of the Chinese PE/VC sector,” says Alexander von Preysing, head of issuer services at Deutsche Börse. “The study findings also result from our China-Europe Private Equity Roundtable, with which we have established a well-functioning think-tank network of Chinese and European investors and fund managers.

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