The Art of Valuation in China’s PE Market


November 15, 2012

When it comes to investing in Chinese private companies, standard financial analysis and due diligence practices cannot automatically be transferred, some adaptation is required, says the latest study by Deutsche Börse and CMS Hasche Sigle on China’s private equity market. For example, there is often a lack of data for making comparisons with publicly traded companies and sorting out tax issues remains troublesome.


The report also said that while price/earnings multiple averages have decreased from 60x, in 2010, to 48x, in 2011, and 30x, by the end of Q2 2012, they are still “relatively high” by international standards, which may cause PE investors to be careful about calculating return multiples.


This year the focus for investors shifted and they are less focused on export-dependent sectors and much more on tapping China’s growing domestic market in sectors like consumer goods industry or the healthcare market. Furthermore, with growth slowing PE/VC investors have become more cautious, particularly in valuing target companies. There is also information about IPOs and valuation from an auditor’s perspective. (Image source: Deutsche Börse)

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