New York middle market firm buyout Arsenal Capital Partners has opened its first international office, in Shanghai, and has hired former Arch Chemicals executive Steve Li to lead the office.
The new office will not make investments in China, but rather serve as an operational base to support Arsenal's investments. The new office will help Arsenal's portfolio companies to source lower-cost materials, set up manufacturing joint ventures with local Chinese companies, and even help the portfolio companies sell their products in Asian markets, Arsenal managing director Jeffrey Kovach told PEIM.
Since the firm's earliest investments in 2002, he said, Arsenal noticed that the industries and types of companies that it focuses on ? often companies in the services or manufacturing sectors ? tend to benefit from expanding operations globally. Consequently Arsenal set up Chinese joint ventures for several of its first fund's portfolio companies, a decision that proved profitable.
Arsenal has hired two for the office so far, and hopes to grow the team to five eventually. Li will be a principal at Arsenal, and Alice Yao will be an office manager and provide analytical support for portfolio companies, Kovach said. He said Arsenal hopes the Shanghai team will serve as a more organized presence on the ground to help portfolio companies, working to develop relationships with advisors and networks and relevant industries.
Arsenal was attracted to Li's operational background, industry relationships and technical expertise, Kovach said. Li spent seven years at Arch Chemicals, most recently as area director for the Asia Pacific region and president of Arch China. He has also held research and development positions in the US at adhesive manufacturers Bostik and Century International Adhesives & Coatings. He received his PhD in chemistry from Vanderbilt University, as well as an MBA from the University of Louisville's Singapore program.
Li's background makes him well-suited to work with Arsenal's portfolio companies, many of which are in the specialty chemicals sector.
Arsenal bought Velsicol Chemical and coatings maker Sermatech in 2005 for an undisclosed amount Arsenal also acquired Reilly Industries in October 2005 for $250 million, and Rutherford Chemicals in 2003 for $65 million. In 2006 Arsenal merged the two to form Vertellus Specialties, which the firm sold in December 2007 to Chicago-based private equity firm Wind Point Partners, earning a three times return on its original investment.
Firms all over the globe have been opening Chinese offices with increasing frequency. Many of them are opting to set up shop on the mainland, rather the region's historic finance hub, Hong Kong. Nokia spin-out BlueRun Ventures opened its second office in the country, in Beijing, in December.