China Private Equity Chilled 43% by ‘Old Days’ Asking Prices

When Bob Partridge of Ernst & Young LLP was advising a global private-equity firm seeking to buy half of a Chinese kitchenware maker in December, due diligence revealed the company’s net income to be a third less than expected. Still, the founder insisted on his asking price, 23 percent higher than publicly listed peers.

The $75 million being sought, which the owner said reflected “China’s future prospects,” valued the company at almost 20 times its earnings, according to Partridge, an Ernst & Young partner covering China, Hong Kong and Taiwan. Comparable stocks in the MSCI China/Consumer Discretionary Index, which tracks 17 Chinese consumer companies listed in Hong Kong, are trading at 16.2 times earnings. In other markets, including the U.S., private-equity valuations are typically lower than similar listed companies.