Private equity firms enjoy a 'banner year' in China

PricewaterhouseCoopers said 2014 was a banner year for new private equity investments in China and the scale will remain robust in 2015.

According to a report by PwC released on Thursday, 593 deals were made in the Chinese PE sector in 2014, up 51 percent on the previous year, and the value totaled $73.2 billion, up 101 percent.

Globally, there was only a 10 percent increase in PE deal value.

China was the single largest PE investment destination in Asia from 2008 and accounted for 41 percent of Asian PE deal value in 2014.

The report also said the number of total Chinese venture capital deals rose 81 percent to 1,334, a record since 2008.

"The reform of State-owned enterprises played a major part in the record figures, but outbound deals, on a significant scale for the first time, also contributed," said Larry Nie, a PwC partner.

Nie said that PE investors will play a more important role in SOE reforms in the coming years.

The report showed outbound investment by local PEs and financial buyers almost doubled from 25 deals in 2013 to 49 deals in 2014. Outbound deal value reached a record high of $14.3 billion, up 1,300 percent.

"PE investments reached a record high in 2014 as funds sought overseas businesses with a strong China connection for their portfolios," said Ni Qing, a PwC partner dealing with private equity.

Ni said the big players in China are emerging to compete with their global peers and they are seeing a step-up in outbound M&A involving some of the preeminent Chinese PEs. The outbound trend is happening much faster than many people expected or have realized.

The report said technology and consumer-related sectors accounted for more than half the amount of PE deals, reflecting investment plans that aim to be in tune with the strategic direction of the wider economy.

It showed PE fundraising in China remained healthy, with the strongest dollar fundraising since 2008 and a slight uptick in renminbi fundraising.

Total equity investment funds raised in China last year accounted for 9 percent of the funds raised globally, compared with 6 percent in 2013.

Fundraising for the Chinese mainland and Hong Kong markets dominated the Asian PE sector with around $365 billion raised from 2004 to 2014 (not including allocations from non-China specific funds). This dwarfed Japan in second place with $77 billion and India in third with $62 billion.

"Unlike in developed markets, yuan-denominated PE fundraising has been dominated by retail investors. This is changing as institutions in China including securities and insurance companies are granted permission to invest in PE, which will bring hundreds of billions yuan over the medium term," said Vincent Cheuk, Northern China head of the private equity group at PwC China.

As expected, there was a rebound in the number of PE and VC exits. Trade sale exits by mergers and acquisitions hit a record high, but initial public offerings, although at a three-year high, were well below the levels seen in 2010 and 2011.

Cheuk said: "The industry as a whole is moving into an 'exit phase' and the backlog of exits also represents a challenge for the sector.

"The A-share market has been and will continue to be an important exit route for PE investors. However, we will also see trade and secondary sales by M&A becoming more frequent."