A Conversation on China
The Jordan Co.'s Thomas Quinn talks to Mergers & Acquisitions about how his firm established a presence in China and the draws that brought his firm there in the first place
June 2008
The Jordan Co. has been active in China long before most U.S.-domiciled PE firms could pinpoint Fooshan City on a map. The firm has seen the opportunity set change, evolving slowly from low-cost labor to a vibrant and burgeoning market into which companies now want to sell. Quinn discusses how Jordan Co. established its presence in China, and provides an outlook on where he sees the market moving over time.
Mergers & Acquisitions: Tom, you've been in China for a while now. Could you discuss the history of Jordan Co. in the region and what initially drew you there?
Quinn: We started in China back when people would still say that they admired our courage for going there. It's been a long time. We started in 1994 and completed our first transaction in China in 1995. It was a boot-strap, greenfield startup that manufactured a product associated with another company we owned. We completed another acquisition that same year that related to telecom components, which did well, and since then we've done about 22 transactions in China.
We're a private equity firm headquartered in New York, so most of what we do there is centered around supporting the U.S.-based companies in our portfolio. Early on it was about accessing low-cost labor, but our goal now is to sell into the country and access China's population of 1.4 billion people. Our strategy has changed to the point that I'd say 80% of activity is done to gain access to the market.
Mergers & Acquisitions: You make it sound easy, but I imagine there's a lot more to it. Could you describe Jordan's approach to the region?
Quinn: We have a fairly sizeable facility in Shanghai, which serves as an administration office for our M&A group. Youming Ye was the first person we hired there — he's a managing director who's in charge of M&A for all of our portfolio companies. If there isn't anything worth acquiring, we'll also consider launching a startup. We just did that for our sensor metering business. And every once in a while, we'll make a separate platform investment in the country.
We also set up a sourcing group in Shanghai that works with the portfolio companies to figure out what they need in terms of manufacturing help, and they'll perform all of the work behind that. It's pretty much a turn-key operation, so our domestic managers don't have to spend their time traipsing around China trying to figure out how to do business there.
In Beijing we have an operations management group, headed by Allen Chan. He has been with us for a couple of years and his role is to help Westernize our Chinese companies as best we can. We've found that a lot of companies are starved for help when it comes to adopting Westernized management and business practices. Allen, who is a Chinese national, spent most of his career at GE, so he can come in and add value immediately.
Mergers & Acquisitions: Can you provide an example in which Jordan was able to come in and retool the business?
Quinn: We've done about four or five deals for state-owned-enterprises. They can be very difficult to buy. They're certainly not as Westernized as one might like. But we did find an interesting deal that we closed about two years ago — it took us about three years to actually complete it.
The Heilongjing Province wanted to sell a coal mining equipment business. It was a profitable company, but they wanted to sell it so they could have a Western operator come in and run the business.
You only hear about the big companies, the top 100 or so government-owned companies, but there are literally thousands of state-owned enterprises that are run by their respective provinces. We largely won the deal because we've been in China since 1994 and have built up a strong track record. But it took a couple years to get through the negotiation process. It's not because it was contentious, but, rather, because they hadn't ever worked through a contract before.
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