Tencent invested in Liu Xiaodan and Xiaoyaozi

Tencent is once again acting as an LP.

According to Investment Circle - Decoding LP, there has been a recent business change in Shanghai Chenluan Enterprise Management Partnership (Limited Partnership), a subsidiary of Chenyi Fund, with Tencent appearing as a new partner.

The head of Chenyi Fund, Liu Xiaodan, was once the soul of Huatai United Securities and handled many classic cases, earning the title of "Queen of Mergers and Acquisitions." In 2019, Liu Xiaodan led the Chenyi Fund to focus on merger investments, successfully raising 6.8 billion yuan for its first fund. Last year, Alibaba veteran Zhang Yong and Hu Xiao joined to handle mergers and acquisitions.

This time, Tencent has invested in Liu Xiaodan's fund, reflecting the hot trend in mergers and acquisitions.

Tencent Invests in Liu Xiaodan's Fund

Specifically, Shanghai Chenluan Enterprise Management Partnership (Limited Partnership) was established in February 2022, with Chenyi Hongqi (Beijing) Consulting Co., Ltd. as the executive partner. Its business scope includes enterprise management, enterprise management consulting, and information consulting services. The partner information shows that this partnership was jointly established by Chenyi Hongqi (Beijing) Consulting Co., Ltd. and Beijing Chenyi M&A Fund (Limited Partnership), among others.

In July of this year, Shanghai Chenluan Enterprise Management Partnership (Limited Partnership) underwent a business change, adding partners such as Guangxi Tencent Venture Capital Co., Ltd., Wuxi Chenyi Growth Equity Investment Fund (Limited Partnership), Xiamen Jinyuan Zhanhong Phase II Equity Investment Partnership (Limited Partnership), Zhuhai Zhongye Investment Enterprise (Limited Partnership), and Shenzhen Zhouyi Management Consulting Partnership (Limited Partnership). The registered capital increased from 461 million yuan to 1.161 billion yuan.

Among them, Guangxi Tencent Venture Capital Co., Ltd. and Shenzhen Zhouyi Management Consulting Partnership (Limited Partnership) are both subsidiaries of Tencent, contributing 150.39 million yuan and 50.13 million yuan, respectively.

In other words, Tencent is acting as an LP and has invested in Chenyi Fund.

In the merger and acquisition arena, Chenyi Fund is quite active, and founder Liu Xiaodan is well-known. A graduate of Peking University, Liu Xiaodan left her job in 2000 to start her M&A career. Her professional history at Huatai United is particularly noteworthy: under her leadership, Huatai United transformed from an obscure regional brokerage into a leading investment bank, with its M&A business becoming its flagship.

Until the summer of 2019, Liu Xiaodan bid farewell to Huatai United and founded Chenyi Fund. At that time, under extremely challenging market conditions, Chenyi completed its first fund's 5 billion yuan initial closing in just a few months. Six months later, in January 2021, Chenyi announced the completion of fundraising for its first RMB M&A fund, with a total scale of 6.8 billion yuan, focusing on three major areas: medical and health, consumer and services, and technology and manufacturing.

Over the years, Chenyi Fund has publicly disclosed over 40 investment events, with investment cases involving pet medical care, biomedicine, semiconductors, power batteries, technology, and manufacturing, including projects like Ruichen Pet, Silan Microelectronics, Anshi Information, Jingfeng Medical, and Xinde Semiconductor. In addition, Chenyi Fund has also partnered with Mindray Medical to establish a medical industry fund and collaborated with WuXi AppTec to set up a medical M&A fund, and this year it invested 1.2 billion yuan to acquire Huacheng Network Notably, in March 2024, former Alibaba Group Chairman and CEO Daniel Zhang officially joined Chenyi Fund as a managing partner. Shortly thereafter, Hu Xiao, the former head of Alibaba Group's strategic investment, also joined.

M&A Wave

Tencent invested in Chenyi Fund, aiming for mergers and acquisitions.

"The era of rising tides lifting all boats, where everyone makes money, is over," Hu Xiao recently stated, pointing out that both funds and invested companies now face higher demands. For investment institutions, the core challenge lies in finding industries with a certain degree of certainty and growth potential within the broader environment, and selecting high-quality companies.

In this context, mergers and acquisitions are surging. Over the past two years, M&A has become one of the hottest keywords in the venture capital circle. As we have seen, this year Sequoia China acquired a majority stake in Marshall for €1.1 billion, DeHeng Capital bought RT-Mart, Qiming Venture Partners invested CNY 452 million in the listed company Tianmai Technology, and Hillhouse Capital is bidding for Starbucks China, while Kangqiao Capital has initiated the largest professional medical M&A fund in the country, among others. VC/PE firms are actively engaging in M&A.

State-owned enterprises are also getting involved. From Guangdong, Shanghai, Zhejiang, and Jiangxi to Sichuan, Hunan, and Hubei... various policies and measures regarding M&A are emerging across the country. The second phase of the Shanghai industrial transformation and upgrading fund and the state-owned capital M&A fund matrix are about to launch, with a total scale exceeding CNY 50 billion; Suzhou announced the establishment of various special industrial funds and talent funds led by Su Chuangtou, with a total scale of nearly CNY 100 billion, including a CNY 10 billion M&A fund for strategic emerging industries... The M&A boom is evident.

Why is M&A so lively? Reviewing the primary market situation, due to the cooling of IPOs, the decline in VC/PE exits has been rapid, prompting most investment institutions to strengthen efforts for non-IPO exits internally. In this context, M&A is seen as an exit channel, and the venture capital circle has high hopes for it.

Chenyi also pointed out in its latest article that turbulent times are often "cash is king" periods. Cash, as the most liquid asset, can help companies manage operational expenses more calmly during chaotic times, choose appropriate financing windows, enhance investor confidence, and provide a thicker safety cushion to cope with unforeseen events and market fluctuations. During turbulent times, divesting non-core assets to recoup funds and increase cash reserves is undoubtedly one of the most effective ways for companies to enhance their risk resistance.

Of course, the challenges of M&A are also apparent. In discussions with investors this year, many frequently mentioned that while the demand for M&A in the market has become increasingly strong, the number of available targets for M&A is also growing. However, the reality is that the number of M&A transactions has not shown explosive growth, and China's M&A market still has a long way to go.

Challenges also mean there is significant room for development. Perhaps things will unfold as Xin Yuesheng, managing partner of Xincheng Capital, predicts: "Based on my over 20 years of investment experience, when the market is on the left side, trading activity will be very sluggish. Once the market turns to the right side, trading will become active. I believe that in the next year or two, the turning point for the M&A market will appear, leading to a surge in M&A transactions." "Don't be pessimistic, there is still work to be done in mergers and acquisitions, the era of mergers and acquisitions is about to arrive."

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