Matthieu David interviews Peng Li, the business director and partner of Merger-Link. Peng Li sold a dozen restaurants for 45 million USD in China and valuing each restaurant at 2-3 million USD. Peng Li, co-founder of Merger -Link has the SaaS solution for you to source the right deals in China with synergies for your business.
China paradigm is a podcast is sponsored by Daxue consulting where we interview successful entrepreneurs about their businesses in China. You can access all available episodes from the China paradigm Youtube page.
Matthieu David: Hello everyone today I am happy to welcome Peng Li on the show China Paradigm, Hello Peng Li
Peng Li: Hi Matthieu, thank you very much for inviting me
Matthieu: Should I call you Peng?
Peng: Yes of course
Matthieu: It’s okay. Good. So, I am very happy to work with you because I knew you, I think 4 or 5 years ago and you were introduced to me as a person who a sold a business for 40 million dollars and each restaurant being valued at 2 or 3 million dollars and I was amazed, I was amazed by how you could do that. You were working in finance at that time you were still working in finance, 13 years you are working in finance, so you have a lot of insights of how to work in finance in China and how to value a company and you have been now in another business, in the SaaS business, providing information about non-companies to investors. So, it could be private companies it could be corporations wanting to buy in China and I look at your platform, you showed to me, it’s only Chinese so I couldn’t read everything but I looked at one company I saw everywhere, actually the coffee shop chain and I was amazed by the information you provided.
Because, I didn’t know they were so small actually, and I saw they very big I saw them everywhere. So, it gave me a very good understanding of how the brand equities they had and how powerful they were. So, at the same time I would be interested in the audience to understand your software how it works, also the situation of MNA, how to value a company in China and so on. Thank you very much, should we hear!
Peng: Thank you Matthieu for the very detailed introduction. Just to make it short my name is Peng Li to all the audience. I am a Chinese native and a French national. You are being very flattering in your introduction saying that I sold a company. Actually, that was when I was working as an investment banker at my previous firm called William Blair which is a US American investment bank. That’s when we sold a retail restaurant chain to another cross-border buyer. So, I am a little bit familiar enough with these type of transactions. So, after 10 years of doing investment banking in London and then in China, I moved to the buy side and worked for a large Chinese investment company called Fosun, and then I also worked for as a strategy and business development person in Yum China which is large… I mean you probably you are client yourself. They own brands such as KFC and Pizza Hut.
So now I am on my own, I am starting to work as a managing director and a partner for a business intelligence firm called Merger-Link and we are not similar to… we are a little bit similar to investment banks, but we are more a business intelligence provider. So, it is in the form of a SaaS but the essence of our business and the value that we create is to basically generate and collect and structure proprietary information and intelligence and we sell that information to private equity funds and investment banks and other MNCs who are doing investments in China.
Matthieu: So, for everyone who is listening to us, SaaS is software as a service, so it is basically providing service on a repeat monthly bill, and you can access to it by basically paying every month for the service. Could you give us an idea of the size? It could be clients, it could be revenues, it could be a number of people in your team… just an idea.
Peng: Sure. As you just mentioned, we charge our clients not on the monthly basis but on annual basis, and we have over 50 clients… institutional clients. So, most of them are private equity funds they are global USD private equity funds or Chinese venture capital funds. We also have MNCs etc. So, we are on 50 right now so we only launched our SaaS platform for over a year, so the momentum has been pretty good and in terms of staffing we are around 20 people by now.
Matthieu: So good progress
Peng: Thank you very much, we try to continue to grow and it’s actually… we have a very, very unique service offering and because… I think no one else, to my knowledge no one else in China is doing this type of business. So, in terms of size we are still small, but we hope that we can change this industry by basically providing the services to all the private equity funds and to all the investment banks and hopefully most of the companies who are trying to invest in China in the future.
Matthieu: What’s the difference between you, the solution you are offering like Metro-link and Wind, Bloomberg, Capital IQ all those companies because I feel there are… not a ton but several software, several companies providing financial information so could you explain to us why those 50 clients chose your solution.
Peng: Absolutely, a very good question I think all the names you mentioned are great names in the industry. They are business information or sort of database provider for all the companies or investors etc., but however I think Wind and Bloomberg they are mainly providing information on the secondary market, so stock market so if you… yourself you want to invest in some companies or if you are asset manager in an asset management company investing in the secondary market than I think Bloomberg and Wind are great platforms. Capital IQ is more of a tool you can go check and search potential private companies etc.
The main difference between us and all those types of businesses, all those other types of names is that we are only focusing on the Chinese market and secondly, we are only focusing on proprietary intelligence.
So, what it means is that we gather the intelligence we have on our platform you cannot find it anywhere else on Bloomberg, on Baidu, on Google, on Wind or on capital IQ. It’s every type every single piece of information is proprietary so and that information is actionable by our client….
Matthieu: That means on your solution, I cannot get listed companies’ information and I will get basically more medium size to small size companies that people don’t cover in Wind Bloomberg Capital IQ or even in the press. Am I correct?
Peng: You are partly correct. I think exactly we only provide information that are not anywhere else, but we also have information of about some listed companies. For example, we talk to them, we talk to the CEO of certain listed companies and they will tell us what type of assets you would like to acquire in China. So that information is proprietary because its in his head or in the policy of the company. So, we get that information.
Matthieu: Okay, I saw you were as buy side but literally, you can be used as sell side as well.
Peng: Exactly, we can be used a sell side and buy side. So right now, our entry point, our focus is on the investment in China. But we see more and more clients, actually demands from companies from abroad asking us to sign business partners or licenses for their brands or distributors for their brands etc.… so I think in 5 years, I think our business we can evolve into a more of a business finder sort of, because we have access to the companies and we have a lot of those… they’re information if they want to sell, if they want to buy… and what type of if they want to raise money etc.. so, it’s basically actionable intelligence and access to those firms and we provide that intelligence to the companies and then if our clients are interested in them, we access, we make the connection basically between our clients and the company they are interested in.
Matthieu: Okay. What is the pricing of your software?
Peng: The pricing depends. So, it’s depending on its two structures. The upfront and the backend. On the upfront as the SaaS we have the subscription fee on an annually basis, and once if we make the connection… if the client sees an interesting investment opportunity or the acquisition opportunity, we will connect them and if we make the connection and they do the deal successfully we will charge a referral fee or finder fee. So, it’s a basically a subscription fee and financial sort of a referral fee.
Matthieu: What is the cost of the subscription? Could you disclose the….
Peng: The cost it depends… again it depends. So, if some clients want to pay lower for example referral fee then the upfront fee is much higher and if they can pay a much higher referral fee then the upfront fee is lower. But again, we need to charge a subscription fee because we want to make sure our client is serious and they really want to do investments or acquisition in China.
Matthieu: I see, so every client you are going to have a different contract. You are going to kind of negotiate and it may depend as well on how you feel about their having to acquire…
Peng: Exactly, exactly so our clients are almost partners, because when we talk to them, I ask the private equity funds or ask what do you want to invest in? What kind of ideal investment do you want to do in China? What type of companies you want to acquire? and they will tell me okay, I want to acquire in the most difficult sector possible with the lowest valuation possible. Then I will tell myself, okay maybe they will do one deal every two years or three years. Then we will probably have a little bit higher upfront fee than you know… so it’s a balance between the two.
Matthieu: Okay, so are you not afraid that they will connect directly to that person in the article…? I mean they could skip you right?
Peng: Yes, it’s actually again a great question. We have been trying to test… actually we have almost ten daily proprietary investment or acquisition opportunities per day. So, on the daily basis. So, we have clients from the venture side, so smaller business, smaller investments to the buyout side. So large MNA and much bigger deal size. That means that there are so many deals in China in the middle market, with all different type of sectors… it’s very hard for them to go and find the deals and their contact themselves. So, if you want to do a really systematic approach and trying to find as many as potential deals possible, they can do it but efficiency is not that high because they have may be ten people on the ground… they are all very, very busy. They need to do auditing and they also do cold calls or do market research. So, their job… I mean I did… I was an investment banker myself, so we had to do a lot of advisory to the clients, we had to do a lot of presentation, internal discussion, evaluation and negotiation and drafting etc.… so all those take a lot of time, and if you ask these people… very highly qualified people and very smart people to do searching companies in the Chinese middle market and do cold calls, it’s a not an efficient use of your time. So what we trying to be positioned is… that we are the outsource service for them because the initial part of the investment process which is sourcing deals, screening… looking for potential targets, finding the contact and getting connected, all those can be outsourced and we believe that we are a businesses development tool as well, using business intelligence so we can help them free their time, empower their time or empower them to do more things that are value add which is actually what they are paid to do by their limited partners or their investment banks etc. So, what we are trying to do is again… we are not afraid that they are they skip us, we actually welcome that because if they do once or they do twice they will know that we have more and more deals and more and more value because they simply cannot go to every deal. It’s too many because we have thousands of deals a year so that’s… literally you need a huge team to do that.
Matthieu: When you say thousands of deals, you have thousands of companies you interview or you have thousands of deals which are closed that you are seeing? It seems a lot like thousands.
Peng: That’s also a good question. It’s actually a lot and at the same it’s not a lot because when you look at Chinese economy the Chinese middle market is huge and the Chinese middle market contrary to European or more developed countries, there is a lack of transparency and there is a lack of information.
Matthieu: What do you call middle?
Peng: Middle market I would call it from anything… any revenue from 5 million US dollars to 500 million US dollars. Middle market, and you know you are right to be surprised, but still in the US middle market would be 10 million US dollars or 20 million US dollars to a billion US dollars. So, it’s already much smaller than in the western or more developed market… because the Chinese economy is still an emerging economy.
So That middle market is huge and there is a massive very, very difficult massive problem for information and then some companies have three accounts…they have business activities that are opaque and it’s very difficult to find their real owner. So, all those types of problems all those types of information we try to resolve them and try to give clarity and basically access to our client. When you say two thousand it’s actually not that much, I think in China we did a statistic, there are around 30 thousand to 40 thousand companies’ private companies that have around 10 million of net income. So, you will see it’s not that much but we have two thousand or three thousand a year so we need three years if we don’t hire more consultants, we need ten years to cover them all. So, it’s not that much… we believe that after 5 years because we are growing as well in terms of employees etc.… after 5 years or 3 or may be 4 years we can cover all the Chinese middle market companies and then I think it will make sense to open this SaaS platform to everyone, to yourself, to consultants, to lawyers to every companies basically because we will have access to all the founders of those companies and the CEOs of those companies.
Matthieu: How do you screen the companies on your platform? Is it by size, is it by sector, I guess size- sector? What are the criteria you are putting in your platform?
Peng: Yes, I think its very good question again. The way to find companies in our platform is basically five or six factors. You have size, you have their intentions to sell… so if they don’t have intentions to sell you will eliminate all those who are not willing to talk to you or to the private equity funds. You have of course their sector, that is important. We have over 200 sectors that we cover, two niche sectors. So, for example if we go into healthcare, we will have services, we will have pharma, we will have CRO etc. etc. so we have many, many niche markets. We will also have USD and RNB sort of currency, because some private companies prefer to raise fund with USD private equity funds and some prefer to work with local investors. We also have for example… forward looking or currently doing the transactions. So, it’s basically all the features of the transaction. You can look through all of them and there are many, many ways to find what you want in the platform.
Matthieu: Okay, because I felt when I looked at your platform that there was a kind of article where you have qualitative information, but you put a quantitative also with six criteria.
Peng: It’s more than six, but it’s six big criteria. Six directions.
Peng: Yes, and you are right it’s basically an article… but that article will have some information about the intention to sell or their intention to partner with what type of investors. There are revenue, there are profit, there are business mode of course, products etc., their structure and their fund-raising history etc. etc. So, it depends, some have very complete profile, some have not as complete because we have to interview. We get those information through interview, and through basic interview with the top management or the real owner. So sometimes if they have less motive to raise money, they will tell you less of information obviously. So, it’s not a fixed rule but most of the time we can get a lot of the proprietary information without signing an NDA, because our consultants they are trained to get information and especially to get those proprietary sort of non-public information.
Matthieu: So, it’s not only the interview right, you collect information through your fund. Where have you made it elsewhere and you write a full article on this specific company, which actually can go in a very different direction right, depending on the sector. You may talk about the location if it’s a coffee shop company, you may talk about the quality of infrastructure if it’s a production, so it can adjust to every kind of company.
Peng: Correct, absolutely… the way we work is we have 30-40 databases or sources of information… some are public, some are proprietary like for example Daxue consulting, we can go to some very competent research company. So, we ask them, we gather all those information, we structure them and then we have an article and after we have all the information, we call we identify of course the owner and we access them through our own connections and then we get the final confirmation through an interview. So, it’s both an interview and gathering of all the information from the various types of databases.
Matthieu: Since you started, did you have any client hold with your board, through service?
Peng: Yes absolutely. So, we have around now 50 clients a year to date, so since we launched our SaaS in September of 2017 last year, we have closed… I mean we have received success on around 7 transactions. So most of the transactions are done by private equity funds, clients so they basically reads our news….
Matthieu: 7 transactions?
Peng: Yes. 7 transactions that’s correct! They basically read our platform…
Matthieu: 7 transactions that’s like….
Peng: Yes, that’s a lot more than I used to have when I was a banker myself. Yeah, correct it’s actually very high and we are trying to increase our success rate because the more clients we have, the more we are going to have closed deals. So basically, all those deals, they go through our platform, they look at it and they are like wow! okay I like this company, I like this sector and then they ask us to connect them to this company that who wants to raise money, so we connect them. They do their diligence, of course they meet they sign NDA, they negotiate etc. and then they basically invest in the company and then we get as I mentioned before the referral fee.
Matthieu: So, once you have the client who is looking at the database is not. I mean you don’t leave them alone right you keep connecting with them because you may actually show up some opportunities… I don’t know on a monthly basis and so on, because you have an interest that is happening right
Peng: Of course.
Matthieu: You have direct interest that something is happening, so you are not only providing information, and people and the clients are using the leads as they want, actually not using in some cases… you are actually pushing them to look at some articles, some information, even adapt the search for them so they can actually find the right target because you have an aligned interest, at least you want them to close the deal.
Peng: Absolutely, our incentive is to… I was a banker and our incentive is to make our client close deals because they are all private equity funds or MNA department of MNCs and their job is to close deals, because they have dry powder, capital to invest and they need to invest. Usually private equity funds have funds to invest for certain period of time and they need to invest in the best deals they can during that time frame. So that’s why we try to generate as much deal flow and as much intelligence for them on a daily basis. So now we have around ten per day. So, you know you will find… once you are on that platform you will find eventually the ideal deal and the one advantage of our platform is that we don’t need to…. most of the deals that are in our deal, don’t have financial advisors or investment bankers, so for example when I was selling this restaurant chain as an investment banker…. it’s already in the market basically the asset and I was basically selling it to many, many different private equity funds. We probably contacted over a hundred funds or strategic buyers etc. So, all the market… it’s an auction process. So, for the buyer, if there is less advantage… if it’s an auction process because at the end of the day there is competitive friction and the highest bidder will get the asset. Here on our platform, because it’s proprietary and only have 50 clients right now and they are all looking for different type of deals, usually they look at the deal they are the only investor our only potential interested party for that deal and that is very, very interesting because that give them more time for diligence more time to establish the relationship with the founder and basically get the evaluation the entry evaluation down so that’s the massive advantage they have using our platform
Matthieu: Wait, I’m not sure I understand… does it mean that if you have a client in the automotive industry you would refuse the older ones in the automotive industry.
Peng: No, no we don’t. We usually… right now for MNCs it okay because we have people in the healthcare industry, we have people in the consumer industry and in the industry or in the manufacture industry. So, we don’t have so many conflicts but on the private equity side we have around 45 of those are private equity funds. They are overlooking… it’s actually quite impressive and quite interesting that they are overlooking different deals. There are those who are looking for early venture deal, there are those who are looking for large buyout deals, there are those who look only for gross capital or consumer or those who only look for healthcare. So actually, right now we don’t have many conflicts but once… of course now we have increasing number of clients they are looking for more… some clients are looking for more of the same thing. So, for now we give them sort of an exclusivity. So, the first one who acts on intelligence that we wrote, they will have an exclusivity for a certain short period of time. So, it’s actually quite… I would say it works right now, because sometimes there are some interests and they are busy on some deals and they are not looking for new deals and so it really happens like this. We are also trying to make it work and to understand how we make sure everyone is happy and everyone is getting the information from us.
Matthieu: I think the barrier to entry on your business is that you have to invest a lot at the beginning in terms of getting a lot of articles. Could you give us an idea on the size of investment of how many articles you had to pour into this business or did you may be select some verticals some segments some strategy? How did you deal with the initial investment because I feel that is a biggest barrier to entry?
Peng: Yes, again I think you don’t work for consulting for nothing, it’s a very, very good question. First of all, there is a number of the deal leads and there is the quality. So, quantity and quality. So, if you have thousands of useless deals leads that no investor would be interested in, still that doesn’t form a barrier to entry. So, you would suppose quality and quantity. Actually, I would say quality is more important, because if you know what your client wants… for example if a middle market buyer wants to see facilities managements companies, for example pest control or catering companies or cleaning companies. So, those who go to hotels and clean the uniform etc. It’s very, very niche and specific sort of market right. So, you need to know that these clients, they want this type of asset. So, we are actually talking a lot to our clients. It’s not only that we wake up this morning and like okay I am going to look or I going to ask our team to find deals in the automotive segment. No, we actually talk a lot to our client and listen to what he wants. And then when they say okay, I want to see this sector I will direct our team to look for deals in those sectors. So, it’s actually… that, anyone who is not a banker or who has never done investments, it’s difficult for them to get the right direction, where to find those business leads. So then of course, the more you have the more the deals you have, the easier for you to sell your services. So right now, it’s a very, very… I won’t say easy but the people can see the value straight away because you just go into the platform and they say wow! you have so many potential deals leads etc. That we don’t have a problem, but for sure yes for the last two years… the first two years you have to work with clients that trust you. So, based on relationship etc., and you cannot go to people who don’t know you. So now we have that basis to show our new clients the value of our intelligence and now they can see it straight away and now the barriers is already here because it’s very difficult for another one who come in and say okay, I can show you ten per day… you know you already have them. Chinese market is only that big, so how many private equity funds do you have? The quality ones? You have may hundreds, and how many MNCs you have, you have the fortune 500 and so we from that side we are pretty confident that it’s difficult for any new entrants to compete with us.
Matthieu: Yes, because I feel you are in the same industry as market places. You have clients to look at information and you input information, but I feel that you have adjusted a little bit by getting your first clients and then adjusting segments to get more information to segments and then because you build up on those segments, you are able to get all the clients interested in this segment. ICC, you have this Groff which is intellectual in the begging and then extrapolating towards the sector. What about development? Because you are not a developer, you are not an IT developer, I don’t think your partner is an IT developer, Nasser…is there anyone who is from IT in your team, I mean from the beginning of funding partners?
Peng: From the beginning to be honest we are using Excel
Matthieu: Okay. It’s a very good tool.
Peng: Yes, it’s a good tool but to become a SaaS you really need to be a little bit more than that. So, we did use an IT company to build our… it’s a customize solution so we have basically a very unique one. I don’t think there is any other software like this, it’s purely based on the needs of a basically private equity investors or MNA department of MNCs and it’s very easy they look at the intelligence and then once they, they just need to click on it and they can request on meeting them or having a call or having more information etc. and they can also do request for customized search.
So, for example if you are a client of mine and you say Okay, I want to look for all the business or potential targets that are in my sector. Basically consulting, that are that big for example from 10 million to 50 million US dollars. That are only located in Shanghai, So all type of criteria’s you give it to me and we will find those targets for you and we will clear or qualify the market for you and it’s a massive city, you will save a lot of time and it will be almost 90% coverage because we have all the sources that are out there that are available. I am not saying that you cannot do it, our client and yourself can do it yourself as well, you can do it probably as good as us but you will take for you much much longer time and you people normally, they should be focused on your real business, core business and not on looking for targets etc. So sometimes investment banks they do that and they even outsource these jobs to us when they have clients who wants to buy companies in China or look for targets in China.
Matthieu: I think that you have segmented different steps of value creation of investment bankers and you have found out that sourcing of acquisitions was actually the one you could outsource and actually you could replace someone in the company actually. You may have thought about pricing based on the salary of someone. Was it your thinking?
Peng: Yes absolutely, I think you are spot on there. You asked for the price, our pricing for every client it depends of course on their need and on their capability to close deals. But I can tell you, I can guarantee you that for him buying our services is much cheaper than hiring one analyst or one associate or two analysts to do this job. It’s much cheaper and at the same time one analyst or two analyst they cannot have the coverage we have because we have 200 people and all we do is looking for targets, looking for information, looking for contact and getting access to them.
Matthieu: I see. Talking about the sponsor that you are consulting, because this podcast is about consulting… so have you had sometime used research for yourself I mean… from your fund, have you used research that help actually to value better your company? In which cases? Could you give us an idea of how research can be useful or…?
Peng: Absolutely, I think for example we use research basically on a daily basis. For example, if a client asks us to look at everything that is all the potential opportunities, investment opportunities in the pet food area, we of course we will go into the internet.
Pet food, so I am going very specific… or pet care or something about the pet industry, which is very hot actually right now in China. So, we will look for all the research we can on this industry and try to understand the different segments of this industry. Whether it’s pet healthcare or vetenerary services, whether it’s food, whether it’s… you know all this different type of niche and then we will go to find these opportunities according to the research. So, basically, we use those research on a daily basis, we need to… otherwise… and again it’s specialization it’s a space, it’s a incisible hand, you are specialized in your business, it takes too much time for us to do the research on our own, so we have to use professional research people and output and then use them to do our own work.
Matthieu: Yes, I see with my client that actually was lacking information, right information to make the right decisions, I think we are in a very similar situation with our similar businesses.
The second part of the talk I wanted to have with you is about MNA evaluation, current situation in China. I feel something is happening in NHA. Didn’t pay well I think in Australian media, RMB. Could you tell us a bit more about how… first how do you value companies in China? I mean do you use the same sources? Do you use the same ritual? We can be a bit technical like work and so on. If you could give some directions to the people who are listening to us. It would be very interesting!
Peng: Sure, I work with many, many private equity funds, so they make investments for a living so we know how they do valuation. I mean I used to be an investor myself working for private equity funds so, I think in China the main difference in the valuation in China and abroad is that in China the valuation is typically… relatively speaking is much higher than in the US or in Europe.
Matthieu: Why so?
Peng: I think there are a few reasons for that. I think first of all you have, if you look at the structure of the economy you have many, many state-owned companies and those state-owned companies in China, SOE’s, as we call them, you cannot make investment on them obviously. they are state assets, they are managed by the government. So what else do you have? You have listed companies and the private companies. You can make investment on them, but the listed companies unfortunately you only have a few thousand, you have 4000 of listed companies in China and they are all very young because if you look at the history, China has only been opened for 40 years to market economy, and those companies are very young and they are very young meaning that they are growing very, very fast and once you grow very fast, the growth is actually a factor of high valuation. So, if you’re growing very fast, obviously you’ll get very, very high valuation, and that’s one massive, big reason of why Chinese companies are much higher value, and the second reason I think is that the Chinese retailers… sorry the Chinese retail investors, so people like me and you and our neighbors, if they have some money, they’ll put it in the stock market. Usually, in China they don’t have many choice of investment, not like in the US. Here, you either buy a flat or you put the money in the stock market. So, a lot of people would just put a lot of money into the stock market and just… it’s a very retail-oriented market. So also, here, once you have the institution and the retail putting all their money into the stock market then obviously the valuation goes up also very high. So, I think it’s a lack of investment vehicles or investment options because the Chinese cannot go abroad and buy US stocks or European stocks, it’s purely Chinese stocks. So, I think that’s also another reason and the third reason is the massive amount of liquidity that has been created by the government in the market. So, you had the crisis in 2008-2009 and I think the Chinese government just did quantitative easing of I don’t know how many thousands or millions or billions… I don’t even remember its… huge amount of money that had been poured into the market, meaning that those market either they will be invested into infrastructures or factories etc., and a lot of them are directed into real estate, into companies. Into stock market. So, all those reasons will basically affect the valuation and make the Chinese companies really highly, highly valued. I believe that its very overvalued and I can see on our clients, our private equity clients, they feel that in China it’s just very difficult to be an investor, a proper investor a professional investor because you have to be careful with the inter-valuation and if you invest at a very, very high valuation and you only can make money when its even higher at the exit. Right. So now there is some doubt about… if that valuation will come down because of the economies. Not as hot as before. But yeah, I am also one that believes that it has to come down at some stage and it will certainly be sooner than later.
Matthieu: Do you think it’s difficult for professional investors to invest in China because we don’t use the same tools, like comparable DCF equity value and that basically you are more market oriented, it’s a peer ratio, on the stock exchange it is very high, actually its more comparable than DCF based on cash flow than it is in business? That’s what you mean by saying its difficult for professional investors?
Peng: No, I think you’re right. I think all the DCF, the comps, the MNA transactions, MNA comps etc. all those tools to do valuations, it is based on the market. For example, if some companies want to buy Daxue consulting and you are ready to sell it for a certain price, but if you see the market is… all your peers, the other consulting companies are valued really, really highly so you are very likely to accept high price, similar price as your peers. So I think in that way, the market is always influencing the mind of the entrepreneurs, so that’s why they have very, very high expectation in terms of valuations, so that makes the life of professional investors more difficult, especially if they don’t have access to a lot of leverage in China because that’s another problem or another issue, that we can talk about, because the way to make money on your own investment, there are three different ways, you have the leverage, you have of course growing the business, and you have the arbitrage between the entry and exit multiple. Here in the US or in the West, a lot of LBO funds they use leverage to increase their return but in China, they don’t have access to that. Anyway, that’s deviating from our subject but I think the main message is that you cannot… the entrepreneurs have very, very high expectation on their valuation, so they will only change their mindset if the market goes down or the valuation in the market goes down.
Matthieu: I see. Good thank you. Thank you very much, I think we closed to 40 – 45 minutes.
Peng: A bit quick.
Matthieu: Good, glad you enjoyed it. Thank you for your time, I enjoyed it. And we’ll be published I guess in a few weeks. You will see on our channel. Thank you everyone for listening.