China's Harbin Electric Sparks a Buyout Bid From Its CEO


Tianfu Yang, chairman and chief executive officer of China's Harbin Electric (HRBN), is proposing to take the company private. Yang currently owns roughly 31% of the outstanding shares. The bid comes to $24 per share, or a total value of $752.2 million. The private equity sponsor is Baring Private Equity Asia, and the financial adviser is Goldman Sachs (GS).

Since becoming a public company in early 2005, Harbin Electric, which manufactures electric motors in China, has certainly had a volatile stock. While the company has a massive market opportunity, the industry is competitive, and it can take time to gain traction. In light of Monday's buyout offer, however, Harbin's management continues to be upbeat.

Sophisticated Micro-Motors

Founded in the late 1990s in Harbin, China, Harbin Electric now has an extensive line of motors, including linear, micro and rotary motors. While linear motors are similar to traditional ones, there is a difference in the rotational force. Generally, this allows for better designs, efficiency and precision of movement. Harbin sells linear motors to a large number of customers in both China and the U.S.

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The company's micro-motors are highly sophisticated systems that help with things like automating seat folding, electric power steering and trunk openings. Harbin's industrial rotary motors are focused on trains, power plants and the construction industry.

Harbin is seeing a nice payoff from its offerings, according to its quarterly report. Total revenues spiked 175% to $105.44 million, and adjusted net income increased 224% to $24.02 million. A key part of the company's success has been a restructuring, which has led to better operating efficiencies, including the disposals of non-core assets, as well as the purchase of Xi'an Tech Full Simo Motor.

During the recent recession, Harbin saw a material drop in its business. That's natural because the company's business is highly cyclical. And there are still concerns that the business will slow down if China's economy weakens. But for the long haul, Harbin's prospects look promising. The company has next-generation motors that will be essential for China's growing economy and should maintain premium margins. So, it should be no surprise that Harbin's management wants to own the company.

Interestingly enough, this deal could also be the start of another important development in China. The country has so far seen few private equity transactions. But as its financial system gets more sophisticated and the industrial base continues to expand, it seems inevitable that China will see more and more buyout deals.