April 28, 2015 / 9:00 PM / 4 years ago

As China tech M&A heats up, boutique advisers steal big banks' thunder

* Deals on track to beat last year’s near-$50 bln record

* Small firms claim more than half of tech deal fees - data

* Deep ties from arranging finance for startups

* Growing China tech firms retain trust in boutique players

By Elzio Barreto and Denny Thomas

HONG KONG, April 29 (Reuters) - Boutique Chinese financial advisers are stealing a march on global investment banks as deals pick up speed in the country’s red-hot Internet industry, turning deep ties to entrepreneurs, venture capital and private equity firms into mounting fees.

Small shops like China Renaissance, Hina Group and Kilometre Capital Management arranged crucial early-stage financing years ago for then-startup firms that have developed into billion-dollar businesses. Those tech firms haven’t forgotten the leg-up: boutique advisers banked 57 percent of tech merger and acquisition fees so far in 2015, Thomson Reuters data shows, nearly double last year’s share.

As China transforms itself into a more services-oriented economy and the government looks to bolster consumer demand, Internet and tech startup companies have taken centre-stage, raising billions of dollars from investors. China’s tech sector has seen $25.6 billion of M&A deals so far this year, on pace to beat the record activity of $49.8 billion in all of 2014.

That is offering a growth opportunity for the boutique firms that have grown up alongside new tech companies. Thriving on deep connections, brokering deals between Internet entrepreneurs they know personally, the little-known firms are frustrating bankers representing global investment houses, and sector watchers expect their share of business to keep growing.

“We want to beef up our M&A practice because we see that as a big opportunity,” said Fan Bao, founder and CEO of boutique firm China Renaissance. “The long-term fundamentals for China’s new-economy companies are looking good.”

Earlier this year, Bao personally brokered the $6 billion deal between China’s two largest taxi-hailing apps, Didi Dache and Kuaidi Dache, backed by Chinese Internet giants Tencent Holdings Ltd and Alibaba Group Holding Ltd respectively.

Bao had helped Didi Dache raise $15 million to help grow its nascent business in 2013 - that initial relationship paid off when Didi was looking for an advisor for its merger with Kuaidi.

‘SMALL AND STICKY’

Fees on Chinese tech M&A deals reached an all-time high of $87.1 million in 2014, compared with $11.3 million just five years earlier. While Credit Suisse tops the board with $8.3 million in China tech M&A fees so far in 2015, China Renaissance ranks second with an estimated $7.6 million, leading a pack of similar domestic players.

“Basically, it’s a small and sticky world of venture capitalists and entrepreneurs who are behind these deals,” the Hong Kong-based head of M&A at a global investment banking firm said.

“There is plenty of money waiting to go in and some of the deals just require bringing the founders together. And boutiques have an edge when it comes to doing that,” the person added. The source was not authorised to comment about rivals publicly.

In one example, when classified advertising site 58.com Inc agreed to buy a 43.2 percent stake in smaller competitor Ganji.com in a deal valued at $1.6 billion, boutique firm Hina Group advised Ganji.com. China Renaissance worked with a group of selling shareholders in Ganji.com, while Kilometre Capital advised 58.com, sources with direct knowledge of the deal said.

Firms 58.com and Ganji.com didn’t immediately respond to Reuters requests for comment on their decision to hire boutique firms.

“The bigger picture here is, you got the best fundamentals for potential M&A that we’ve had for years,” said Robert Partridge, Asia-Pacific private equity leader at consulting firm EY. “These smaller boutique firms are really good at originating deals and getting these marriages consummated.” (Editing by Kenneth Maxwell)

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