Fountainvest raises $1.35 bn for fresh buyouts in China

By Brian Robbins

Dec 01 2012, 12:34 PM EST

Economic slowdown in China accompanied by new M&A-friendly regulatory norms have encouraged China-focused private equity firm FountainVest Partners to raise a second fund with the primary objective of making fresh acquisitions.

Fountainvest, led by ex-Temasek executive Frank Tang, has raised $1.35 billion at a time when fundraising prospects in Asia appear rather dim in the face of difficult macro-economic circumstances in the region.

The new fund -- FountainVest China Growth Capital Fund II LP -- will target high-growth businesses that need $50-200 million of equity. The current market conditions in China present an opportunity for the fund to zero in on companies that could yield significant returns as the economy retraces its high-growth path.

FountainVest will profit from a scenario where other funds that operate in the country are loathe to channel significant money into new funds in the wake of weak returns from their last round of investments. So, there will be fewer funds chasing investment options in China, although there are currently over 5,000 private equity funds operating in the country.

FountainVest has raised the fund in about eight months, as per reports, and the quantum of fund is far greater than its $950 million debut fund raised in 2008. CEO Tang aims to invest in companies that will likely leverage the growth opportunities that emerge from China's growth and structural changes.

Reports suggest that a slew of high-profile funds such as Temasek Holdings, Washington State Investment Board, San Diego County Employees Retirement Association, California State Teachers' Retirement System, and Canada Pension Plan Investment Board have invested in the new fund.

FountainVest is reportedly engaged in buyout deals of two U.S.-listed Chinese firms -- a $3.5 billion bid for display advertising firm Focus Media Holding Ltd and a $635 million offer for budget hotel chain 7 Days Group Holdings Ltd.

FountainVest, founded in 2007 by Tang, an ex-Tamasek, has offices in Shanghai, Beijing and Hong Kong.