Observers say that when a foreign private equity firm is considering buying a Chinese company it's amazing to witness the sheer numbers of men in grey suits that often descend upon the target. No, they say, this is not a deliberate attempt to intimidate managers unacquainted with the wiles of the LBO world into making a false move at the negotiating table. It is, in fact, a very necessary assembling of accounting talent.
?At the moment, private equity buyers will typically send in huge accounting teams,? says David Eich, head of the Hong Kong office at law firm Kirkland & Ellis. ?And it's not because of the labyrinthine demands of crossborder due diligence. It's to create a whole new set of books when the existing ones can't be relied on.?
All of which might be about to change, thanks to new accounting rules introduced by the Chinese Ministry of Finance in January 2007. The rules involve compliance with 39 standards structured to reveal the economic value of a firm, with the aim of using market prices wherever possible. ?It doesn't mean that Chinese companies will necessarily meet IFRS or GAAP standards, but it will take them a lot closer,? predicts Eich.
For the time being, the rules will apply only to listed companies. However, where new accounting standards have been introduced in other countries, they have often been adopted by the largest and/or listed companies first before gradually becoming universal. Sources say this should also happen in China, whether by way of a natural trickle-down effect or through the lawmakers forcing the rules on everyone in due course.
In Eich's view, such a development would be viewed as a ?sea change? by private equity firms lured by China's growth prospects but troubled by lax corporate governance. In the years ahead, expect to see more deal executives checking in for Beijing-bound flights and rather fewer number crunchers.
Brightsen, Pellicone leave Apax
Laura Brightsen, the New York-based director of marketing for global private equity firm Apax Partners, has left the firm. In related news, Evelyn Pellicone, the chief financial officer of Apax's US operations, has left the firm. Prior to joining Apax, Brightsen oversaw corporate marketing for broadband network company Winstar. Prior to joining Apax, Pellicone was an audit manager for Eisner, a public accounting firm.
Allied Capital in ?pretexting? mess
Investigations into charges of fraud against an executive of a subsidiary of Allied Capital have uncovered more intrigues at the debt and equity financial company. In the course of gathering documents to respond to the subpoena it received from the US Attorney's Office for the District of Columbia seeking documents of the company's use of private investigators, Allied announced in a statement that it found that one of its agents obtained what ?what were represented to be? telephone records of David Einhorn and his calls from Greenlight Capital, a hedge fund where Einhorn is president and founder. Allied has denied allegations that it authorized Einhorn's phone records to be illegally accessed, or pretexted. But in a public response, Einhorn questioned Allied's innocence, adding that he had been alerting Allied's board of directors of the fraud at its subsidiary for over two years. Einhorn added that believes he is a victim of pretexting by Allied or its agents.
American Capital builds special situations team in Chicago
Washington-based American Capital appointed Dean Anderson to the role of managing director in its special situations group. The firm brought him aboard to build a special situations team in the firm's Chicago officer to complement the one based in Bethesda, Maryland. Anderson comes to the firm from Questor Management Company, a turnaround and distressed investment firm at which he was managing director and investment committee member. American Capital has approximately $12 billion in assets under management and specializes in management and employee buyouts, private equity buyouts and early stage, mature private and public companies. American Capital's special situations focuses on distressed and turnaround investments valued at $20 million to $500 million.
Dutch pension group demands ?responsibility? from industry
The Dutch Association of Industry-wide Pension Funds (VB) issued a statement demanding that pension funds act responsibly as private equity investors. The group said ?VB's members must be transparent on, for example, whether or not they invest in private equity, their criteria and total amount of assets invested,? though members do not have to provide information on concrete investments or funds, as such disclosure may lead to ?loss of opportunity.? They also directed members to make it clear they're investing not just for returns, but with an eye on issues such as the environment and employment at all stakeholders.
Carlyle names European communications director
Emma Thorpe became the director of European Communications at The Carlyle Group in February. She joined the firm from an associate director position at Penrose Financial, a European public relations company. At Penrose she worked on accounts in the private equity and financial technology sectors. Thorpe's ten years of expands its buyout, technology, real estate and leveraged finance activities in Europe, Christopher Finn, a Carlyle managing director, said in a statement. Gold succeeded Katherine Elmore-Jones, who joined Carlyle's investor relations team.