Interview with Prof. James Van Horne of Stanford University--

Interview with Prof. James Van Horne of Stanford University(2)

2007-06-25 14:46:29 [ Big Normal Small ] Xing Zong 　Comment

Xing Zong: Gaining control of the target firm is another headache. Culturally Chinese entrepreneurs are not willing to give up their control over the firm and as a result, it is difficult for private equity to gain the majority shares or a seat on board. What is your comment on that?

Van Horne: Private equity firms usually want control of the enterprises they fund, either directly or indirectly. So if management wants to retain control, it is difficult to attract funding from private equity firms either in the U.S. or in other countries.

Xing Zong: Now private equity focuses more of their attention on traditional industry instead of IT or high tech in China. Many people consider this to be a health trend because it actually goes deep to the essence of business nature. Prof. Van Horne, what is your view?

Van Horne: While mature industries need to be financed, new enterprise financing tends to be concentrated in technology in China as I understand the matter. Buyouts are another matter. I have a different understanding of the situation than your question implies.

Xing Zong: OK, you mentioned buyouts. Some experts predict China could potentially be Asia's buy-out Mecca as each market complements the others in developing buy-out. Do you think so? Do you think buyout will make the Chinese economy better structured?

Van Horne: As mentioned earlier, buyouts represent ownership restructuring. To the extent that the buyout places resources in hands that are able to manage in a more efficient manner, then the economy benefits. Buyouts can bring a degree of discipline to the capital markets which is beneficial. I do not envision a large "boom" in buyouts in China in this decade, but I suspect there will be increased activity.

Xing Zong: It's a fluctuating environment for buyout investors at the moment, because China doesn't want to sell the state assets cheaply on grounds of national interests and yet it's also desperately in need of foreign expertise. What is your comment on that?

Van Horne: To the extent the state-owned enterprises hold out for an unrealistic high valuation, they will remain unsold and the efficiency gains that often accompany a buyout will not happen. A number of venture capital and buyout firms have arisen in China during the last several years. In addition, foreign corporations often want to joint venture in China and will provide financing in the process. The development of these firms should be encouraged and not overly regulated. While such activities are not nearly as developed as they are in the U.S. and in Europe, nonetheless much development has occurred in China in this decade.

Xing Zong: Have you ever been to China? Prof. Van Horne, for any aspiring Chinese young people who would like to go to private equity industry, what are your suggestions? Any closing thoughts to our Chinese readers?

Van Horne: I was in China in March/April of this year. Young people with technical training may be able to join a U.S. or European private equity firm doing business in China. It is my understanding that there are not many pure Chinese private equity firms, but there are some. This segment will grow. The rapid growth of the Chinese economy should bring about much financial innovation in the years ahead. While such activity is nascent now, it should begin to build and there will be opportunity.

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