JD Capital TMT: An Experienced PE Focusing on Quality TMT Players
2016-11-04
Source: PE daily.cn
In May 2016, Jiayuan.com announced that it had completed the merge with Baihe.com and would delist from the US stock market. Jiayuan.com would become an indirect wholly-owned subsidiary under Baihe.com. This deal echoed JD Capital’s logic about investment in the TMT sector. Head of JD Capital’s TMT team said that “the merge is boosted by possible synergy between the two companies. Their businesses are complementary to each other. Amid fiercer competition, the merge will help to improve their financials, which will be more than a win-win situation.”
According to PWC’s latest report, China’s PE and VC investment were on the rise in 1H16. TMT sector had attracted 55% of the total PE & VC investment amount, accounting for 39% of the total investment cases.
JD Capital TMT team expected the investment scale and growth in the TMT sector to further expand driven by industry and consumption upgrade.
Amid evolvement of the TMT sector, enterprises failing to make progresses have been eliminated. The investment method of traditional PE institutions in the TMT sector has always been a widely-discussed topic. What’s the story behind the legendary A-share investment in the TMT sector by JD Capital, an experienced PE institution?
JD Capital’s Logic of Investment in the TMT Sector: Focusing on Quality TMT Players
Unlike the other mature industries that present slow bull run, the TMT sector features “fast bull” (large growth potential) and “big bull” (highly-concentrated industry).
JD Capital’s TMT team believed that most TMT enterprises were less limited by capacity and geographic locations and enjoyed economies of scale. Most subsectors would even see an oligopoly after fierce competition.
Compared to investments into traditional sectors, JD Capital believed that the investment into companies at their start-up stage and at their mature stage would be ideal for TMT investments. The former is of high risks and high yield (such as Angel investment, pre-A and A round of investment) and the latter is of low risk and reasonable yield (such as PRE-IPO and PIPE). JD Capital has followed this logic in organizing its TMT investment teams, i.e. VC team focusing on fledging projects and PE team working on mature projects.
The PE team said that “a quality and mature enterprise always has large security margin, visible earnings as well as long-term sustainable growth. And we tend to work with quality players in subsectors so as to actively change industry landscape and explore its boundary through combining leading players’ industry advantages with the investment strength of PE.”
“We expect enterprises’ profitability to be stronger and to further boost earnings growth under increasingly concentrated industry and emergence of scale effect.”
Following this logic, JD Capital has been engaged in over 20 projects in the TMT sector. Typical cases included investment into FEITIAN (300386) under Pre-IPO model, the private placement of China Net Center (300017) under PIPE model and the merge between Baihe.com and Jiayuan.com. The FEITIAN case and the Baihe.com case were respectively awarded as “China’s best PE investment withdrawing case” and “China’s best M&A case” by China Venture.
JD Capital’s TMT team said that their investments were characterized by selective projects, seizing opportunity and M&A.
Pre-IPO Era: To Follow the Investment Pace and Maximize Industry Value
The last decade has seen the rapid development of the Internet and informationization. JD Capital has established itself as a domestic PE institution with solid and mature business model and has benefited from the Pre-IPO boom.
By virtue of its advantages, JD Capital’s TMT team has acquired many quality TMT projects under rapid development through its nationwide project exploring system. They believed that to set up an investment system especially at specific time points was the key for making investment during this period.
FEITIAN, the bellwether in the information security sector, has brought about a 10-fold return. This represented a typical investment case by JD Capital during this period. FEITIAN’s main clients are largely in the financial sector. People in charge of the FEITIAN project said “financial clients tends to choose an exclusive information security service provider and are rather loyal. FEITIAN has largely monopolized this segment as it is the first information security supplier for banks”.
JD Capital’s TMT team needs to fully understand the development logic of the industry as well as make use of the best investment timing. JD Capital took stake in FEITIAN in 2010 when it started to grow rapidly after its start-up stage. TMT team took the opportunity to invest in FEITIAN and achieved 10-fold returns on its investment.
In addition, Sino Wealth Electronic (300327), Yunxingyu (having submitted IPO application) and Zhuhai Pilot Technology, leading players in each segment, have become clients of JD Capital’ TMT team. They represent JD Capital’s investment in the mature TMT enterprises.
JD Capital TMT Investment 2.0: the Winning Method of Capital + Bellwether Plan
Amid advances in the Internet and the information industry, each segment in this sector has become more mature and more emerging subsectors have cropped up. By virtue of its strong capital operation capacity, JD Capital’s TMT team has seized opportunities in this sector through industry M&A, PIPE and other investment methods.
To engage in the merge between Baihe.com and Jiayuan.com and the private placement of China Net Center have been the two representative cases in this period.
In May 2016, Jiayuan.com announced that it had completed the merge with Baihe.com and would delist from the US stock market. Jiayuan.com would become an indirect wholly-owned subsidiary under Baihe.com. That was over one year later when JD Capital firstly presented the quote for Jiayua. com’s privatization in June 2015. During this period, JD Capital shared twists and turns with Jiayuan. com, with the privations plan being revised for dozens of times and JD Capital turning from an offer presenter to the investor of Baihe. com at last. Baihe.com became the main body for Jiayuan. com’s privatization.
This deal has best verified JD Capital’s logic about TMT investment. The TMT team head said that the privatization of Jiayuan. com presented a handsome cross-market arbitrage opportunity due to the company’s market position and solid profitability as well as its low valuation at the US market.
Head of JD Capital’s TMT team said that “the merge is propelled by the possible synergy between the two companies. Their businesses are complementary to each other. Amid fiercer competition, the merge will help to improve their financials, which will be more than a win-win situation.”
Another representative case by JD Capital’s TMT team in the investment 2.0 time was the 3-year private place of China Net Center. In 2015, JD Capital jointed hands with JD Asset Management in this case and started to facilitate the company’s construction of an Internet cloud system covering community cloud and cloud security businesses.
Founded in 2000, China Net Center is a provider of content distribution and acceleration services and server trusteeship and leasing services for clients around the world, as well as network optimization solutions for operators. In 2009, the company got listed on the ChiNext among the first batch of enterprises. “China Net Center is definitely the leader in China’s CDN sector”, JD Capital’s TMT team described. With stronger bargaining capacity and economies of scale, China Net Center has kept GM growth for 4 consecutive years since 2012. According to its 1~3Q16 results report, its operating revenue expanded >60% year on year.
Based in China, JD Capital aims to boost the development of outstanding TMT enterprises and help more bellwethers in each segment as well as create hefty returns for investors by virtue of its strength in capital operation and in this industry.
“JD Capital will continue to select quality TMT enterprises and help them boost organic growth advantages and external expansion ability through M&A and optimizing capital structure. We expect to help enterprises achieve rapid growth and even become market leaders. We intend to differentiate ourselves from the other investment institutions and create a path with JD Capital features,” said the Head of JD Capital’s TMT team.