While you were eating turkey on Thanksgiving Day, the Carlyle Group was busy carving up a new deal in Asia. The firm has reportedly been in negotiation to buy control of China’s Xuzhou Construction Group for between $300 million and $400 million.
A Carlyle spokesperson in Washington, D.C. had no comment on the transaction. But details of the buyout of the construction equipment company were reported in China late last month, and last week The Wall Street Journal reported the deal and the unconfirmed price.
Carlyle’s acquisition of Xuzhou is the latest in a series of foreign buyouts of domestic Chinese companies. ASIMCO, China’s largest independent manufacturer of automotive and truck components, was purchased in a $96 million buyout led by the Key Principal Group of Cleveland. AIG Capital and other PE firms also participated in the acquisition. That buyout, the largest disclosed acquisition of a Chinese domestic company by a foreign private equity buyer to date, was completed in February.
More recently, another buyout of a domestic Chinese company by a foreign private equity firm was announced in late September. CVC Capital Partners, a European private equity firm, acquired some printing operations of BASF (NYSE:BASF), including the pigment production at the BASF Colorants & Chemicals Co. Ltd. in Shanghai, China. The deal closed last month.
While the acquisition of Xuzhou is not the first leveraged buyout of a domestic Chinese company by a foreign private equity firm, it is another example of how Carlyle expects to be active in Asia. Carlyle co-founder David Rubenstein has said that the firm expects to “be incredibly active” over the next several years and expects to “put to work” more than $2 billion in the region.
So far, at least one of its investments has panned out. In 2000, the firm invested in KorAm Bank and invested again later in a consortium with JPMorgan Partners (the total investment was $435 million), before selling its entire 36% stake, plus non-owned shares of KorAm, to Citigroup, in a $2.7 billion deal in April, more than six times the total investment. Xuzhou, based in the city of the same name, not far from Shanghai, is China’s largest producer of construction equipment – bulldozers, graders, compactors, excavators and wheel loaders – which it sells worldwide.
Xuzhou’s black-and-yellow construction machines are reminiscent of the American construction equipment maker Caterpillar (NYSE: CAT) for good reason. The Peoria, Illinois-based company has been in a joint venture with Xuzhou since 1995 to design and sell construction equipment in China.
Xuzhou employs 25,000 and predicts that it will post $2.4 billion in revenue in 2004.