In a burgeoning Chinese dealmaking market dominated by large global banks and massive local institutions, four-year-old independent investment bank Moelis & Co. is seeking to stake a claim. In April the firm acquired Hong Kong financial advisory shop Asia Pacific Advisers, giving Moelis its first local presence there. And in November, it opened a Beijing outpost headed by new managing director Joseph Chow.
Chow, 49, a China native who began working out of Hong Kong in June, joined from Beijing's CJC Partners Inc., where he was a managing partner advising on cross-border deals for Chinese companies. At Moelis, he is supported by newly hired associate Gary Liu from Roth Capital Partners LLC, an office manager and a document translator. The firm plans to hire more bankers dependent on dealflow and is in the process of adding a midlevel banker, whom Chow declines to name, from China International Capital Corp. Ltd., known as CICC.
New York-based Moelis hopes to advise Chinese manufacturing companies on outbound investments and overseas acquisitions driven by their appetite for energy and mining resources, Chow says. Chinese companies are also looking to acquire new technologies, as the traditional advantages of low labor costs and various government subsidies "are not sustainable and are being eroded," he adds.
Moelis' biggest obstacle in the Chinese market is that it lacks the name recognition enjoyed by much larger global banks and local players such as Bank of America Corp., J.P. Morgan Chase & Co., Goldman, Sachs & Co., UBS, Morgan Stanley, CICC and Citic Securities International Co. Ltd., which regularly top the Chinese M&A league tables. Indeed, Moelis has worked on only two Chinese acquisitions in the past two years, advising Beijing Pacific Century Automotive Systems Co. Ltd. on its $450 million purchase of GM Global Steering LLC, announced in July 2010, and Norwegian conglomerate Orkla ASA on the sale of the silicon and solar activities of its Elkem AS division to China National Bluestar (Group) Corp. for approximately $2 billion, announced in January.
But Chow says Moelis can differentiate itself from peers with its independent advisory business model. Chinese clients recognize the conflicts that can surface at banks with both sales and trading operations, Chow says, adding that "Chinese business culture is very relationship based, and trust is very important. Clients tend to place more emphasis on who they are dealing with as opposed to which organization they are dealing with."
Chow began his career in the U.S., joining GE Capital Corp.'s structured finance group after earning his M.B.A. at the University of Maryland in 1993. He moved to Citigroup Inc. in 1997 to work in risk management and M&A, and returned to China in 2001 as chief financial officer of Chinese telecom China Netcom Group Corp., which he helped take public in 2004 in a $1 billion U.S. and Hong Kong initial public offering.
He served as CFO of Chinese network equipment producer Harbour Networks Holdings Ltd. from 2004 to 2005 and then became an independent adviser to private equity firms and large financial institutions seeking to invest in Chinese companies. One of his clients was Goldman Sachs, which hired him in 2008 to head its Chinese private finance group. He joined CJC Partners in 2009.
With his capital markets expertise and understanding of local culture, Chow fits the mold of the type of banker Moelis is seeking in China, where he says "the talent pool is tight." Because of Moelis' current lack of Chinese name recognition, its bankers must also be "aggressive in going out and knocking on doors," he says. And as many of the global banking giants and local players have already walked through those doors, Moelis may face an uphill battle.