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Fresh off a $460 million investment in Yum Brands' China operations along with Ant Financial, Primavera's founder and one of China's most influential dealmakers Fred Hu believes "there's a lot of irrational fear and anxiety about China buying up the world. The fact is that China still punches below its weight as an investor overseas."
A former Goldman Sachs China chairman, Hu brokered the Wall Street titan's $2.9 billion stake purchase in the world's largest bank, ICBC, before its huge 2006 public listing. And thanks to close ties with Jack Ma, Primavera also managed to buy shares in Alibaba before its record-setting IPO in New York. Recently Primavera Capital made financial news headlines as Anbang's investment partner in its failed $14 billion bid to buy Starwood Hotels & Resorts away from Marriott International.
Hu says that for their part, Chinese companies looking for overseas acquisitions also need "to be more thoughtful and really understand the host country's rules, regulations and sensitivities. And do business in a world-class way. This will take time."
Primavera's founder says the U.S. provides a lot of opportunities and of course the group is very interested in making future investments. Hu says, "The consumer sector, the services sector, technology sector … there is just a lot more opportunity in the U.S. maybe than in China or Asia more broadly."
In the Yum deal — Primavera is buying a minority stake in the American company's China unit, which will be spun off into a separate listed entity on Nov. 1 in New York. The deal sold at an 8 percent discount with warrants to buy a further 4 percent stake in Yum's China business.
Oppenheimer Research applauds the thoughtful deal, writing in its client note that "we are big fans of the pre-spin investment deal. It brings in strategic Chinese partners with impressive track records who will have influential Board representation."
When asked why Primavera and Ant Financial didn't opt for a controlling stake in Yum's China business, Hu says, "Our point is not to control this company. This is a very big company. We position ourselves to be a trusted partner, being an engaged shareholder and a value-add shareholder."
After entering the Chinese market in 1987, Yum is now China's most popular fast-food chain with over 5,000 KFCs and close to 2,000 Pizza Huts. Food safety concerns in China have hit KFC sales the last few years, only returning to positive sales growth the last 12 months. With the right partners though, Yum is hoping to maintain if not add to its considerable Chinese market share.