Not many people outside China have heard of Goodbaby Group. Neither had Chris Gradel until one day in late 2005, when a pile of the Shanghai company’s shares landed squarely in his lap — as part of a portfolio of publicly traded equities, distressed debt and private equity investments that his firm, Pacific Alliance Group, was purchasing at a steep discount from a large U.S. insurance company. After a little research, Gradel was impressed. Goodbaby, China’s largest manufacturer of strollers and other children’s products, had more than 30 percent annual revenue growth, as well as 90 percent-plus national brand-name recognition. In January 2006, Pacific Alliance turned its minority stake into majority ownership, paying $122.5 million for 67 percent of Goodbaby. It financed the deal with a $55 million loan from Taiwan’s Taipei Fubon Bank in what is generally recognized as China’s first Western-style leveraged buyout.
Since 2004, Pacific Alliance has invested about $1 billion in 34 private equity transactions in China — mostly involving consumer or retail companies — including five deals like the one with Goodbaby, in which it has a controlling stake. Managing partner Gradel, however, didn’t formalize the private equity business until 2006, when he convinced Allan Liu and Rachel Chiang, veteran deal makers whom he had met during the Goodbaby acquisition, to join him at Pacific Alliance in Hong Kong.
Liu and Chiang are managing partners of Pacific Alliance Equity Partners, the firm’s private equity group. Liu, a former department head at the China Ministry of Foreign Trade and Economic Cooperation, has advised several major U.S. companies, including American International Group, Blackstone Group, Lehman Brothers Holdings and Procter & Gamble Co. He oversees Pacific Alliance’s 50 private equity professionals and support staffers. Chiang, who in her dozen years at AIG was involved in more than 300 transactions, spends much of her time traveling around provincial China, as does Liu, visiting small and midsize cities, touring companies and calling on local businessmen and dignitaries.
“We are not here to make a fast buck,” Liu says. “We are here for the medium to long term, growing Chinese businesses and entrepreneurs.”
Of course, Pacific Alliance is also trying to make money for its investors. Gradel concedes that the firm recently hired investment bank Morgan Stanley to evaluate potential buyers for its stake in Goodbaby, whose annual sales are about $500 million. The reported price of any deal: at least $200 million.
See related story, “Secret Asian Man”.
