Tonghua Dongbao: The Second "Haier" Of Strategic Investment

Recently, the official announcement of a big deal in the field of new infrastructure has put an end to Dehong capital's investment business in 2020.

On December 15, 2020, Dehong capital (DCP) announced that it had jointly led the investment of Haoyun Changsheng Group (hereinafter referred to as "Haoyun Changsheng") with a scale of 300 million US dollars. The raised funds will be mainly used to support Haoyun Changsheng to continue to build modern and efficient data centers, so as to seize the opportunity of rapid development of China's data center industry.

"In China, there are not many real mature large-scale data center operators. We are very optimistic about Haoyun Changsheng. It is a young enterprise in the process of rapid development. The team has entrepreneurial entrepreneurship and strong executive power. " About the investment, Liu Haifeng, chairman of Dehong capital, told the 21st century economic report.

Liu Haifeng was a global partner of KKR, CO head of Asia private equity investment and CEO of Greater China. Prior to joining KKR, Liu was managing director and co head of Asian direct investment at Morgan Stanley. In 2017, he co founded Dehong capital with Hua Yu Neng (also a former KKR partner).

Although Dehong capital has only been established for three years, its founding team has 27 years of investment experience in China, and has led the first batch of large-scale private equity investment projects in China. Representative cases include China Ping An, Mengniu Dairy, Qingdao Haier, CICC, Qiming medical, ape counseling, modern animal husbandry, Yuandong Hongxin, Heng'an international, Nanfu battery, Baili international and COFCO meat Food, United environment, Shengnong development, etc.

Continuing the PE investment style in KKR period, Dehong capital tends to select competitors in promising industries and cooperate closely with the management team after heavy investment. Due to the heavy capital and reinvestment, the projects invested by Dehong capital are generally large, with an average investment amount of more than 100 million US dollars. In 2020, in addition to Haoyun Changsheng, Dehong capital also invested in Tonghua Dongbao, ape guidance, Jishi capital, xinxiuli, Kunbo biology, Kaijin new energy and other projects.

"PE investment from the bottom of the heart is more focused on the industry of re selection of competitors. We hope to develop valuable projects in the five major fields of consumption, medical care, Internet, finance, industry and enterprise services with our own market professionalism and industry sensitivity, and then provide value-added services for the company in addition to capital through the improvement of post investment operation management. " Liu Haifeng told the 21st century economic report.

Data center area meets growth opportunities and follows up with Haoyun Changsheng in two years

"We've been focusing on data centers around the world since around 2000, and now this business is unleashing its potential in China." Liu Haifeng said.

He analyzed that, first of all, thanks to the rapid development of the Internet, the amount of data is increasing, and the demand for data centers has become more vigorous. At the same time, compared with the uncertainty of some Internet business model innovation, the business model of data center is more controllable, which is equivalent to the role of "water seller" on the gold rush. In the international market, the business model of data center has also been verified in the past 15 years. It is one of the few industries that can go through the business cycle, have sustained growth and have excellent returns.

In addition, from a macro point of view, the penetration rate of data center business in China is still very low. Data shows that China's per capita data consumption is only 13% of that of the United States, and there is still a huge room for improvement in the informatization of individuals and enterprises. With the development of Internet, cloud computing, artificial intelligence and other industries, the amount of data will continue to increase, and the data center will become an important beneficiary industry of data informatization. The compound growth rate in the next five years is expected to reach 30%.

It is not only Dehong capital that sees the opportunities in the data center market. The reporter of 21st century economic report has noticed that PE institutions such as Hillhead and CDH will make heavy bets in 2020. In the second quarter of 2020, the developer and operator of China's high-performance data center, Wanda, has entered the list of shares held by Hillhead. In the third quarter, Hillhouse increased its holdings of 3 million shares of vanguard data. Based on the market value of holdings in the third quarter, vanguard data ranked 12th in the list of shares held by Hillhouse.

On November 23, 2020, CDH mezzanine Fund announced that it had completed the first round of raising of its data center industry investment fund (hereinafter referred to as "IDC fund"), with a total subscription amount of nearly 1.5 billion yuan and a target scale of 2 billion yuan. The fund is the first industry sub fund of CDH mezzanine and the first RMB fund focusing on data center industry investment to complete the first round of raising in China.

After following up on the projects in the past two years, Dehong capital chose to invest in Haoyun Changsheng, which is due to its recognition of the team's business strength and its good prospects for future development.

It is understood that Haoyun Changsheng, established in 2015, is a cloud computing infrastructure service provider focusing on the design, construction and operation of data centers, covering cloud computing, Internet, finance, government affairs and other fields.

At present, the demand of data center in China presents the characteristics of unbalanced geographical distribution. In the first tier city cluster, the demand of data center is the most vigorous. Since its establishment, Haoyun Changsheng has been committed to developing data center projects in the core positions of first tier cities. At present, the project reserves more than 80000 cabinets, and most of them are highly scarce resources in first tier cities.

After following up the project for nearly two years, Dehong team finally finalized the investment. For the investment support of Dehong capital, Huang Zhaoshun, chairman of Haoyun Changsheng, said, "they can not only provide us with long-term financial support, but also bring the world-class operation and management ability and corporate governance experience to Haoyun Changsheng."

Liu Haifeng said that the data center industry has the characteristics of attaching importance to assets and operations, which is actually very familiar to Dehong capital. The team can provide Haoyun Changsheng with not only long-term capital, but also a lot of post investment management support. Dehong team will work closely with the management team of Haoyun Changsheng to give full play to the operation and management expertise, resource network advantages and M & A experience of the Dehong team to help Haoyun Changsheng develop.

Tonghua Dongbao: the second "Haier" of strategic investment

In addition to investing in Haoyun Changsheng, Dehong capital also invested heavily in Tonghua Dongbao in the field of health care in 2020. It is understood that Tonghua Dongbao is a leading enterprise in China's diabetes mellitus, especially insulin industry, and was listed on the Shanghai Stock Exchange in 1994.

In September 2020, Dehong capital took a strategic stake in Tonghua Dongbao, a listed company. It acquired 9% of its shares for 1.94 billion yuan, and held two seats in the board of directors of Tonghua Dongbao.

"We have developed this transaction exclusively for a long time. Our investment in Tonghua Dongbao is similar to that of Haier in that year. Both of them hold nearly 10% of the shares, and we have invested in A-share listing as a strategic investor." Liu Haifeng said.

It is understood that during the period of KKR, Liu Haifeng led the team to invest in Haier in 2014, obtaining 10% of the shares with $603.5 million, becoming the largest institutional investor of Haier. After the investment, the team used its operational expertise to help Haier improve its operations and expanded its global distribution through a series of mergers and acquisitions, including the acquisition of GE's home appliance business, Ge appliances, in 2016. After four years of investment, Haier's income increased greatly. After the KKR transaction team withdrew from the transaction, it realized an internal rate of return of more than 35%.

"This time, just like we invested in Haier in those years, we are also facing the traditional enterprises with steady growth, helping them to integrate resources, merger and acquisition, and improve operation management. This is what we really want to do. As a PE fund, it will bring value beyond capital to the company. " Liu Haifeng said.

This investment is not a simple PE institution's private placement of A-share listed companies, but a very strategic and close cooperation between the two sides. Dehong team will cooperate with the management and the original shareholders to provide value-added services for the company in terms of optimizing the company's operation and management and establishing incentive mechanism.

In addition, in the field of medical treatment, Dehong capital has made deep cooperation with Qiming medical after investing in the company of minimally invasive treatment equipment for heart valve diseases. On December 10, 2019, Hangzhou Qiming medical, the first investment project disclosed by Dehong capital, was listed on the main board of the Hong Kong stock exchange. In July 2020, Qiming medical announced the establishment of a new medical investment platform Jishi capital jointly with Dehong capital and Qiming venture capital.

It is understood that Jishi capital aims to invest in the global innovative medical device technology in the cardiopulmonary industry. With the help of the industrial resources of Qiming medical, as well as the capital strength of Dehong capital and Qiming venture capital, Jishi capital aims to accelerate the R & D and commercialization of global cutting-edge technologies in China, promote the R & D of China's independent intellectual property rights, cultivate and integrate more industry-leading medical device enterprises, and promote China Innovative development of medical devices.

As for the development potential of the medical device field, he concluded that on the one hand, the overall market scale of medicine and medical devices in the European and American markets is basically the same, while the domestic device market is only one third of that of medicine, and the per capita investment in medical devices is only one tenth of that in the United States. This gap means broad development space. At the same time, domestic substitution of medical devices is the trend. China is a big manufacturing country, and medical devices are expected to achieve domestic substitution faster than medicine.

Keep self-discipline and prudence, PE investment would rather "Miss" than "do wrong"

Looking back at 2020, Liu Haifeng said: first of all, despite the impact of the epidemic in 2020, people's enthusiasm for investment has not weakened. Even some areas have been accelerated because of the epidemic, such as online education, community group buying, etc. Based on the long-term optimistic view of the online education industry, Dehong capital also invested in ape counseling in 2020.

Secondly, due to international geopolitical factors, domestic substitution has become a trend, which brings new investment opportunities to the development of domestic chip semiconductor, precision manufacturing, medical devices and other industries. In addition, with the growth of a new generation of consumer groups, a number of potential investment opportunities have emerged in the field of new consumption and new domestic products.

In Liu Haifeng's view, first of all, compared with the Post-70s and 80s, the post-90s have a different understanding of domestic products. The change of their consumption concept will give birth to a number of new consumer products. Secondly, because of the development of the Internet, many industries which were previously considered impossible to break through have achieved breakthroughs, and new sales channels have emerged in the industry. As a result, a new consumer brand began to rise.

"The consumer sector has indeed spawned many good enterprises, and many institutions and funds have begun to gather in this area. At the same time, this has also led to a significant increase in valuation. Therefore, investors must maintain a relatively rational investment mentality and seriously analyze the sustainable growth ability of business models." Liu Haifeng reminds me.

He said that when doing each project, we should have a sense of awe, recognize the nature of the industry, and do meticulous due diligence, rather than simply pursuing some projects that everyone thinks are good. "If money is too easy to earn, it is often not easy to last long."

Having experienced several business cycles, Dehong team believes more in the concept of value investment and will be more cautious in selling. "VC investment is very important is not to miss the project, the most important thing to do PE is to avoid doing wrong projects. Because PE investment, each project investment scale is large, but the relative number of projects is small. If a fund does a few wrong projects, and the money earned from the project may not be able to fill in, so we still need to maintain a rigorous investment style. " He said.

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