Affinity closes $200m Chinese cleantech deal

Hong Kong-based Affinity Equity Partners has invested $200 million in an all-equity deal to acquire 94 percent of Chinese company Beijing Leader & Harvest Electric Technologies, a source close to the firm told sister news site PEI Asia.

Leader Harvest is the market leader in China’s medium voltage variable frequency drive (VFD) industry, with a 10 percent market share. VFD technology improves the efficiency of electric motors, saving energy, and is particularly used in energy-intensive industries like oil and gas, power generation, chemicals, cement, metallurgy and transportation.

Leader Harvest also manufactures wind turbine inverters. The company expects sales in this area of its business to grow in line with the Chinese government’s plan to increase the total installed wind power base from 12 gigawatts in 2008 to 150 gigawatts in 2020.

Made from Affinity Asia Pacific Fund III, which closed on US$2.8 billion in 2007 and is now 50 percent deployed, the investment in Leader Harvest is Affinity’s first in the cleantech sector and its second in China. In January 2008 it invested an undisclosed amount for a strategic stake in advertising company Bojie Oriental Media.

Although its second deal in the country, this is Affinity’s first buyout in mainland China. Buyouts in China are notoriously difficult to transact, due to the lengthy regulatory and approval processes that must be gone through and the reluctance of the government to see control of Chinese companies pass to foreign hands. In this case, say sources close to the deal, the lead-in time to the transaction was shortened since Leader Harvest was registered offshore.

One of the few buyout transactions to have gained approval from the government was the $250 million purchase of meat processor Shuanghui Group by CDH Investments and Goldman Sachs Private Equity in 2006.

Others have fallen by the wayside, including the Carlyle Group’s proposed $375 million acquisition of construction equipment manufacturer Xugong, which the firm abandoned in mid-2008 after three years of negotiations. The government also blocked Coca Cola’s $2.4 billion bid to purchase Hui Yuan Juice in March this year. Had the deal gone through, it would have been an exit for Warburg Pincus, which holds a minority stake in the firm.

Prior to Leader Harvest, Affinity’s most recent deal was the purchase of 50 percent of South Korea’s Oriental Brewery. US private equity firm KKR acquired the brewery from Anheuser-Busch InBev in June for a total transaction value of $1.8 billion; one month later it was announced that Affinity was sharing the investment with KKR. According to the Financial Times, Affinity paid $400 million for its 50 percent stake.