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Private equity: Carlyle constructs China buyout

Modest though it might appear, China's first fully-fledged buyout of a state-owned enterprise is significant.

Patience has always been a much-needed asset when transacting business in China. US-based private-equity firm Carlyle Group has proved it has this sort of staying power. In October, Carlyle announced the acquisition of 85% of Xugong Group Construction Machinery Co Ltd from the city government of Xuzhou, Jiangsu province, for $375 million in cash. XGCM manufactures heavy plant and machinery for the construction industry.

The sale of XGCM was conducted through the local asset exchange and entailed a two-stage bidding process among six international bidders. That process, coupled with intensive negotiations over future restructuring and staffing levels, meant that the deal took two years to agree.

Outright control

Buying a small domestic manufacturer of construction equipment is hardly the stuff to make the blood race, but what makes the deal important is that for the first time the Chinese authorities have allowed a foreign financial investor to acquire outright control of a state-owned business. Previous investments by international private-equity firms have entailed the purchase of minority interests. Carlyle will have full management and voting control over the business and says that it intends to improve technology, management expertise and corporate governance with the goal of creating a leading international construction equipment company based in China.

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