Snowman acquisition case shines light on PE divestment model

Private equity (PE) investment has been developing for many years in China. From the outset, where it was known by few, to the national PE craze arising after the introduction of second boards, those foreign products that came drifting from foreign shores, such as VC (venture capital), PE (private equity), LPs (limited partnerships) and GPs (general partnerships) have become high-frequency terms often on the lips of people everywhere. However, changes in the PE divestment model seem very rare, with IPOs (initial public offerings) consistently occupying an absolute leading position, even becoming the sole divestment method in the eyes of some.

Except for projects in the real estate sector, such divestment models as mergers and acquisitions (M&A) and liquidation have never been a primary option of investors. The reason is simple; during the crazy years when IPO price to earnings (P/E) ratios kept hitting ever higher highs, divestment by IPO was without a doubt the best means to realise investment returns.

Divestment difficulties

The precondition to the foregoing option has been facing more and more challenges in the last year or so. Due to the backlog in A-share IPOs, the frequent denunciations of the offer review system and numerous other reasons, the China Securities Regulatory Commission (CSRC) has, since 2012, gradually reduced the pace of A-share IPO reviews and made them more stringent, leading to a temporary halt to offerings. On 7 June 2013, the CSRC published the Opinions on Further Promoting Reform of the New Share Offering System (Draft for Comment), seeking public comment.

Li Yonggang is a partner at Concord & Partners in Beijing