New firm targets China tourism, aims to beat typical PE returns
US private equity firm General Atlantic has partnered Chinese travel agency Ctrip to back Ocean Link, a PE venture dedicated to investing in the fast-growing mainland tourism sector. It has raised $400 million for deals and is looking to bring in more capital this year.
“Both the sector and the private equity investment world in China are becoming very competitive so having a sector focus is critical in identifying opportunities, making the right judgment call and for portfolio management,” Tony Jiang, a partner at Ocean Link, told FinanceAsia, a sister publication to AsianInvestor.
“The typical private equity firm shoots for a double-digit return, but we feel that our focus on a high-growth sector means we have a chance of beating that,” he added.
China’s tourism sector has grown steadily over the past decade as mainland nationals increasingly travel both within their country and beyond.
The number of trips made by Chinese residents domestically rose 10.5% year-on-year to 4 billion in 2015, while the total number of international journeys by mainlanders increased 12% to 120 million, according to the China National Tourism Administration.
And the number of trips abroad by Chinese residents will double from 120 million in 2015 to 220 million in 2025, according to Goldman Sachs research from November 2015.
“The travel and tourism sector in China is at a pivotal period of growth,” said James Liang, co-founder, chairman and chief executive of Ctrip.
Founded in March, Ocean Link is targeting deals across the value chain and sub-verticals of the travel and tourism sector including hotels and resorts, attractions, online and offline travel agencies and operators, transportation services and related business-solution providers.
The $400 million raised is spread across both renminbi- and dollar-denominated funds and managed accounts.
Ocean Link has already started putting the capital to work across four deals: the $661 million-privatisation of mobile and online travel agency eLong, in which it invested alongside Ctrip and others; Mind Education, a provider in China of educational tours and summer camps; $4 million in Joint Wisdom, a data analytics services provider for China’s hotel industry; and €6 million ($6.7 million) into Germany’s Ruby Hotels as an initial investment with expansion plans in China and then the rest of Asia.
General Atlantic and Ctrip each have the right to appoint a director to the board of Ocean Link. General Atlantic appointed its China head, Eric Zhang, while Liang represents Ctrip. The other two board members are Jiang and his fellow Ocean Link partner, Alex Zheng. All four have known each other for many years and worked together previously on deals in the sector.
“For many years now we’ve been thinking about what’s the most effective way, the most unique way, to do private equity deals in the sector,” Jiang said.
Ocean Link reunites Zhang and Jiang, two former Carlyle rainmakers who worked together on several hospitality deals in China. One of the most noteworthy of their deals was Carlyle’s take-private of economy hotel chain 7 Days with Plateno and Sequoia Capital back in 2013.
While the hotel segment is mature, said Jiang, it could be disrupted by emerging players that cater more to changing consumer needs, which can create investment opportunities – presumably referring to the likes of online accommodation marketplace Airbnb. He also noted that leading hoteliers were keen to consolidate their positions and may have need of capital.