HONG KONG (Reuters) – Hedge fund Avenue Capital is in the final stages of talks to buy a Chinese medical equipment company backed by a unit of Citigroup Inc (C.N) in a deal worth over $100 million, sources familiar with the situation said on Tuesday.
The exclusive talks for Shenzhen-based Landwind between Avenue Capital, one of the world’s largest hedge funds, and Citi Venture Capital International (CVCI) came after Bain Capital and other private equity funds dropped their bids, said the sources.
A deal for Landwind would mark a rare occasion whereby a hedge fund outbids a private equity firm for control of a company. Hedge funds such as Avenue, run by billionaire Marc Lasry, have built up their presence in Asia in the last few years, participating in more and more private equity-style deals.
No agreement has been signed yet and the talks between Avenue Capital, which has about $18 billion assets under management, and CVCI could collapse if they are unable to agree on specific financial details, said the sources without elaborating.
If successful, it would become the biggest investment for Avenue Capital in China. The New York-based fund, where Chelsea Clinton — daughter of former U.S. president Bill Clinton — has worked, previously made smaller co-investments with other funds in China in the past few years.
CVCI, an investment arm of Citigroup, bought an about 70 percent stake in Landwind, a diagnostic imaging equipment distributor and manufacturer, for over $80 million in 2007, when the Chinese company decided to delist from the Singapore market, according to Singapore media reports.
The sources declined to be identified as the bidding process is confidential. Landwind and CVCI declined to comment. Avenue Capital was not available for comment.
CVCI began to seek buyers for Landwind in April, drawing attention from more than a dozen private equity funds including Bain Capital, Affinity Equity Partners, Sequoia Capital, FountainVest Partners, according to the sources.
However, most talks stalled over price, while Bain outbid many of other funds by 15-20 percent, said one source.
Unlike in the West, where Avenue Capital is well known in the financial industry for its long-time investment experience in hedge funds and distressed assets, Avenue is relatively new to the China market.
Lasry, Avenue’s top boss, was the 227th richest American in 2008, according to Forbes, with a net worth of $2 billion.
In China, it operates offices in Beijing, Shanghai and Hong Kong and in 2007 hired Frank Yao, a well-known local fund manager, to help improve its China portfolio. Yao left Avenue Capital for Neuberger Berman last year.
Landwind has a nationwide network in China of more than 20 sales offices with a focus on medical diagnostic imaging devices, supported by more than 50 distributors and 200 resellers, according to CVCI’s website (www.citigroupai.com).
Some dealmakers have said medical and educational services may be recession-proof sectors in which global private equity funds remain highly interested in the global financial crisis.
The Chinese government has said it will reform its public health care and pension systems, which dealmakers expect will boost business growth of medical-related companies as a result. (Additional reporting by Samuel Shen in SHANGHAI) (Editing by Michael Flaherty and Lincoln Feast)