Private Equity Perspective:
Choosing China

The Jordan Co.'s Andrew Rice shares lessons learned from doing 26 deals in China

Few private equity firms boast more experience in China than the Jordan Co. The firm has been investing in the country since the 1990s and has closed 26 deals there. Senior vice president Andrew Rice shared some of the lessons the firm has learned at "International Transformation: Unlocking Value and Executing Abroad," a conference hosted by Mergers & Acquisitions and Bank of America Merrill Lynch at the Standard Club in Chicago.

In the 1990s, the Jordan Co. delved into investments in all the BRIC countries: Brazil, Russia, India and China. But, about 10 years ago, the firm decided to focus exclusively on China.

"It's a fast-growing, stable country with very good support from the government," Rice explains. By contrast, "Brazil had their currency devalued every two or three years in the '90s and early 2000s. Russia has been less and less friendly toward foreign investments. And in India, the infrastructure just hasn't improved like other emerging markets."

Infrastructure is especially important for the types of investments the Jordan Co. makes in manufacturing industrial products. "In the mid '90s, I was flying regularly to both India and China, and neither had any highways," recalls Rice. "They didn't have cell phones yet. The electricity grids were really poor and, the airports were a mess. India has barely improved that; whereas in China, they have 50,000 to 60,000 miles of interstate-type highways, with three or four lanes in either direction. Their port system is world-class. They're building new airports all the time. And their electricity grid is rapidly expanding."

Contrary to popular belief, the various government entities in China are "very friendly toward foreign investment, if they sense the foreign company is really committed to investing long-term to build a business, train people properly and work with best practices."

Challenges in China remain, of course, with the biggest being due diligence, reports Rice. "Many companies, for a variety of reasons, have two or three sets of books," he says. "It takes us extra time in the due diligence process. And then when we make an investment, it's a real challenge to put in best practices."

The Jordan Co. is continuing to evolve its strategy in China, where it has an office in Shanghai. "Over the years, from supporting our portfolio companies, we developed a team that could look at stand-alone deals. So now we're also looking at good investments that are not related to our existing businesses." To view our video conversation with Rice, visit themiddlemarket.com/video.

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