Fu Wei, who spent ten years doing control buyouts, said they are the blue-collar workers of the investment industry.

For years, Fu Wei and CBC Group have been outliers in the investment industry. While most people were discussing cyclical downturns and a scarcity of opportunities, Fu was among the few calling attention to new possibilities. Recently, his firm has delivered a string of surprising news: its R-Bridge Credit Fund exited its investment in biopharma company Paratek through a royalty financing deal; shortly before that, CBC and Mubadala jointly announced a $680 million acquisition of five neurological and immunological drugs from UCB's China business. Beyond that, CBC has made a series of additional moves in healthcare.

Rationally speaking, for primary market investors, value discovery exists whether trends are improving or deteriorating. What truly warrants concern is market stagnation and the loss of liquidity.

At the 36Kr Industry Conference held in Shenzhen on September 12, we invited Fu Wei to speak. His presentation focused on a topic of intense interest during the current market downturn: M&A. Fu not only explored the contemporary significance and social value of buyout investing, but also shared how, amid scarce liquidity, M&A leverages diversified exit strategies to deliver high certainty and robust returns for investors.

What impressed us most was Fu's vivid analogy comparing buyout investors to "blue-collar workers" in the investment industry. He likened the repeatable value creation, experience, and capability accumulation in the buyout process to an "engineered" "assembly line," and described buyout equity as "yield-generating securities." Over the past decade, Fu has led CBC through 20 healthcare M&A transactions and 25 billion RMB in controlling acquisitions — these metaphors distill the iterative experience and insight he has accumulated along the way.

Fu's speech was exceptional. Below is the full transcript, lightly edited.

Buyout investing may be the biggest source of incremental growth in a stock-dominated era

Recently, market discussions around M&A have been intensifying. In European and American LP portfolios, the total volume of buyout investments is several times that of venture capital and growth equity — a trend that has held steady over the past two to three decades. In China, however, M&A still appears to be an emerging field.

Why does buyout investing remain nascent in China? I believe the core reason lies in the past two decades, during which China's GDP surged from $2 trillion to $18 trillion. Venture capital and growth equity focus on incremental assets, while buyout investing primarily involves existing assets and existing GDP. Over the past 20 years, the scale of incremental assets in China was enormous, and the profits and returns from this segment were largely captured by VC and growth investors.

However, China has now become the world's largest economy in terms of real purchasing power, making it impossible to sustain the 10% annual GDP growth of the past two decades. What we do have now is a massive stock market foundation — an $18 trillion GDP. This is good news for buyout investors: the universe of investable targets has become far richer and more diverse. This is precisely why buyout investing has become a hot topic.

The contemporary significance of buyout investing lies in building "industry aircraft carriers"

There is a notable distinction between buyout investing and minority equity investment: buyout investing requires becoming the controlling owner of the invested company. Whether a business thrives or survives an economic crisis depends on the decisions and actions of its controlling owner. This is why buyout investors must roll up their sleeves and engage deeply in operations. This is also the theme I want to share with you today: the core value and contemporary significance of buyout investing.

This year marks the tenth anniversary of CBC Group's founding. We were established in Shanghai in 2014 and have since grown into an international company with a global presence across 12 cities and 160 employees. This growth stems from the inherently global nature of the healthcare industry. Currently, CBC Group manages 84 billion RMB in assets. While our number of investments may appear modest, our average deal size over the past two years has reached 4–5 billion RMB. To date, we have deployed 25 billion RMB in controlling buyout investments, successfully taking control of more than 20 healthcare companies. Among these, 40 domestic and international innovative drug pipelines are in Phase II or III clinical trials, and the total employee count across our controlled companies exceeds 10,000. On the surface, we are a buyout fund; in reality, we function more like an industrial conglomerate.

Our 25 billion RMB in equity investments spans only 20-odd companies. What does this mean? Each investment involves equity capital exceeding 1 billion RMB. In other words, we invest in mature, profitable, sizable enterprises that hold leading positions in their respective industries.

Is buyout investing merely reheating leftovers? Is it simply buying existing assets low and selling high? What is its true significance for China's economic and technological development?

I have discussed this with many people. In the past, when addressing technological innovation, the prevailing view was to support "investing early and small" and "specialized, refined, distinctive, and innovative" enterprises. But we must ask: does national technological innovation truly depend on thousands upon thousands of small and medium-sized enterprises? In fact, what we need more are "aircraft carriers" in technology. To solve semiconductor challenges, we need giants like Huawei; to tackle pharmaceutical innovation, we need leading enterprises like Hengrui. The central mission of buyout investing is to continuously build such "carrier enterprises" across industries.

Carrier enterprises can not only plan R&D and technology on a longer time horizon, but more importantly, they can integrate market, R&D, and production into a unified platform. This directly addresses the pain points faced by many SMEs.

Our economy is already quite mature. The next breakthrough lies in going global — taking our innovations and technologies to international markets. Yet can sending one or two employees to Southeast Asia or Mexico a few times a year truly solve the "going global" challenge? Probably not. Just as a foreigner visiting China four times a year would struggle to generate meaningful returns here. Temu, Huawei, BYD — which of these globalizing giants is not a dominant player in its industry? To create real value in international markets, you need scale. Four trips a year to Mexico makes you, at best, a "seasoned tourist," not a true market pioneer.

We talk about "going global," but going global is merely an action. What Chinese companies need to learn today is not just this action, but more importantly, how to become genuine multinational operators. Yet we must ask: which successful multinational has never done M&A? Which multinational can enter every new market entirely through its own efforts? In reality, almost none.

M&A not only promotes R&D, but also addresses the severe liquidity problems facing innovative enterprises in the current economic cycle. When capital is tight, scientists and CEOs struggle to plan R&D directions three to five years out, instead exhausting themselves dealing with buyback pressures and short-term payroll. Yet any valuable technology project requires long-term planning. If a project can be completed in one year, it probably isn't that valuable. Thus, M&A provides stable funding that allows companies to focus on long-term technological innovation.

Another point worth exploring: what does 18 trillion dollars in GDP mean after two decades of development? Why does M&A enhance new quality productive forces? In fact, this $18 trillion is a revenue concept, and the profit generated by our GDP today falls short of expectations. This is because industries across the board have broadly adopted a business model called "internet thinking" — grabbing land, pursuing scale, prioritizing revenue growth first. In an era of abundant capital, many companies could go unprofitable for over a decade because they could always raise more funding. But that era is now over.

The core task of buyout investing is to increase profits and improve efficiency. Suppose a company generates 2 billion RMB in annual revenue and 300 million in profit; our goal is to raise the profit margin another 10 percentage points through operational optimization. This is the challenge every buyout investment must confront. Therefore, even when GDP growth slows, buyout investing can improve the quality of GDP and achieve high-quality development at the level of underlying real industries.

The underlying logic of buyout investing is getting things done

People often ask how buyout investing generates returns. I believe the core logic is simply getting things done. Many assume buyout funds are lofty, suited-up operations. But today I want to upend that notion: buyout investors are actually the "blue-collar workers" of the investment industry.

Why do I say this? Buyout funds don't need to research where the next AI application scenario lies, nor explore the next hot sector. Recently, when facing LP due diligence, the first question they often ask is: "Where do you think the next hot healthcare subsector will be?" My answer is straightforward: "Sorry, I don't spend time researching that."

The companies we buy and the industries they're in are already at the center of attention — they're all leading enterprises. They're already standing in the wind; I don't need to figure out where the next wind will blow. Companies with annual profits of 300 million or 500 million RMB have already proven their value; their industries' existence is self-justifying.

So first, we don't need a crystal ball. We don't need to be clever enough to predict the next hot sector. Instead, what we need to do is "build walls and dig moats" — make our barriers higher and our moats deeper. This way, innovative startups will find it hard to disrupt us. If we earn 500 million this year with 10% market share, we need to maintain that 10% next year, and ideally raise it to 12%, 15%, even 16%. While achieving 2 billion in revenue, can we raise profit margins from 15% to 20%, even 30%? This is what we do day in and day out.

In buyout investing, we don't need the superpower to predict someone's trajectory over fifty years upon first meeting, nor do we need to judge who is a entrepreneurial genius. Many ask how CBC's controlled companies attract top talent — entrepreneurs like Yiming Zhang, for instance. In fact, we don't work with them. Our partners are professional managers.

Venture capital strives to go from 0 to 1, then 1 to 10, and ultimately 10 to 100. Buyout investing is different. We acquire a company valued at 50, with the goal of growing it to 100. We don't need to endure the arduous journey from 0 to 1. From 50 to 100, there are typically only one or two paths, requiring just one or two key actions. Do ABC these three critical things well, and the company grows from 50 to 100.

Thus, our CEO selection process works like this: we broadly screen professional managers with 20-plus years of experience, looking for those who have successfully accomplished ABC these three critical things in the past 20 years. We will visit them three times, five times, even six times to invite them aboard. What we value are solid execution capabilities, diligent attitude, ample patience, and rich accumulated experience.

Second, value creation in buyout investing. We don't need to identify entrepreneurial geniuses, nor predict the next industry hotspot. Yet buyout success is achieved through concrete action.

In 2022, we completed a closely watched acquisition — five cardiovascular and metabolic drugs from Takeda. At least twenty to thirty funds had evaluated this deal, and everyone saw it clearly: these were off-patent originator drugs facing centralized procurement, volume-based procurement, and erosion by next-generation innovative drugs. Yes, everyone understood this, myself included. I estimate 99% of market participants shared consensus on the essence of this investment. On day one, I figured returns would be roughly 10% to 15% under conventional operations, so everyone found it unappealing. Yet the outcome was surprising. In March 2022, with support from Hefei Industrial Investment and the Hefei government, we achieved 100% DPI (distribution to paid-in capital) in just 18 months, with IRR (internal rate of return) reaching 50%.

Why? I believe it was the three to four critical actions we took subsequently. Within just 18 months, we successively acquired cardiovascular businesses from Roche, Merck, and Korean biopharma company Celltrion. Through this series of acquisitions, our revenue scale surged from 600 million RMB at initial acquisition to over 2 billion this year.

Our first move was consolidating four teams into one, reducing personnel management costs from 10% of revenue to 3%, contributing 7 percentage points to net margin.

Our second move was centralizing production lines from four countries into a single facility in Hefei, cutting production costs by 50% and contributing another 10 percentage points to net margin. Through these two measures alone, despite no revenue growth, our profits doubled.

We also took a third step. As everyone knows, these were off-patent originator drugs with limited revenue growth potential. So we introduced a next-generation innovative cholesterol-lowering drug. This drug had completed Phase III clinical trials in the US, and we secured full rights for China and Asia. The new drug is expected to launch in 2027. This means by 2027, this innovation could potentially raise our revenue from 2 billion to 4 billion.

Please note the Takeda divestiture case. While widely considered a marginal opportunity that everyone could see through clearly and accurately, this was actually not a bad thing. It illustrates the essence of buyout investing — our value creation is achieved step by step through concrete action.

Another example is an endoscopic consumables company we invested in. When we invested in 2016, this company earned only 5 million RMB in annual profit. We acquired this family business for 120 million RMB at a 24x P/E multiple. Though we recognized the volume-based procurement challenge, some investors questioned: "Why buy a company with no technical moat facing volume-based procurement?" My response: "It is precisely volume-based procurement that creates our opportunity."

After taking control, we fundamentally transformed this medtech company into a manufacturing enterprise. From day one, we communicated to the new management team: you need Foxconn's culture, not a medtech company's culture. Through automation, we expanded capacity tenfold on the same production line. Over the past six to seven years, our product unit prices have declined 20% annually, yet profit margins rose from 5% to 25%. Absolute profit grew from 5 million to 100 million RMB. Today, cash on the company's books alone is three to four times our initial investment.

Thus, volume-based procurement and medtech industry trends were known information. We respected industry fundamentals, steadily pushed enterprise transformation, and thereby achieved value creation.

Buyout investing is also an especially boring endeavor — you must have patience

Next I want to emphasize: doing buyout investing is a particularly uninteresting, boring thing. You absolutely must have patience.

Many people think this industry's barriers aren't high, that they could do what we just described. But in reality, the barrier lies in needing a group of people who both deeply understand the industry and can endure solitude. We are not discovering entirely new value creation processes; we are continuously finding similar transaction opportunities, repeating proven value creation patterns. For example, acquiring product lines from multinationals, transforming medtech companies into scaled manufacturing enterprises. We practice and repeat these successful approaches — to what end? So that each new investment can be executed better than the last. This "engineered" method allows us to continuously improve investment efficiency and returns.

I studied electronic engineering in college, and this background has helped me enormously in investing. The engineer's DNA deeply influences my investment philosophy. What I pursue is a complete, repeatable value creation process — like an efficient production line that converts 1 yuan of input into 2.5 yuan of output. This is the goal we constantly chase. We continuously seek such opportunities, refining our investment model through repeated practice and iteration. And the Chinese market contains abundant such opportunities.

This is why we call ourselves "blue-collar workers." Our team often says our work resembles an auto repair shop. When a car comes in, we can diagnose the problem — maybe the AC is broken, or the tires need replacing. We repeat this process continuously, like a repair shop, meticulously fixing each enterprise. For instance, we might buy a "car" for 50,000 yuan, spend three to four years carefully repairing it, then sell it for 100,000. This value enhancement process, we repeat day after day. And Chinese healthcare companies broadly face similar value enhancement challenges.

We have three repair shop "assembly lines."

First, value creation. China's healthcare industry has 10,000 medical device companies and 5,000 pharmaceutical companies, characterized by being "small, scattered, and chaotic." How to consolidate and connect these companies, building them into industry "aircraft carriers," is precisely a value creation process.

Second, we repeatedly acquire assets from large multinationals. To date, we have completed five such transactions. The latest is a 4.9 billion RMB acquisition of the neurology business in China from Belgium's largest pharmaceutical company. If the company is inefficient, we improve its efficiency; if it isn't sufficiently "localized," we make it so. This is how we create value.

Third, helping domestic companies go global. All companies face the challenge and need of going global. Our operations extend not only across China but also into Korea. We acquired Hugel, Korea's largest aesthetic medicine group, for $70 million when 90% of its revenue came from Korea. Just two years later, the revenue structure has shifted to 50% Korea, 50% overseas — including China, Europe, and the US. In the first half of this year, the company just received US FDA approval. We expect that in another two years, operating cash flow will show 30% from Korea and 70% from overseas.

We repeatedly execute this process of globalizing companies. Healthcare is inherently global — a drug or product that works in China works equally well in the US. Therefore, if a company confines itself to a single country or market, it is undoubtedly an enormous waste of value.

These are the three "production lines" we focus on, continuously repeating this value creation process.

Buyout investing purchases yield-generating securities, with perpetual exit channels

Many people keep asking me: "How do you exit buyout investments?" In fact, exit is a pseudo-problem for buyout investing. The biggest difference from minority equity investment is this: buyout investing essentially purchases the right to distribute a company's operating cash flow, not merely equity.

Suppose a company earns 500 million RMB in annual profit. As the controlling owner, I can decide how to allocate this capital. I might choose to spend 200 million on R&D and distribute the remaining 300 million to shareholders; or forgo R&D and distribute all 500 million to shareholders. I could even decide to use the next three years of 500 million annual cash flow as collateral to borrow 1.5 billion from a bank upfront and distribute that to shareholders. These are all decisions I can make.

Thus, what we purchase is a company's operating cash flow — essentially a yield-generating security with priority distribution rights every year. When you buy such a security, you know there will be interest distributions annually; this security necessarily has value, merely at different price points. It's like buying a building that generates 50 million in net rental income annually. People may have different views on the real estate market, but this building certainly has value. By contrast, if you only hold a small equity stake, you have virtually no influence over company decisions. Whether the company performs well or poorly has minimal impact on you. You only profit by selling shares when the company goes public. Yet if the stock lacks liquidity, minority equity investment faces enormous predicament.

Of course, we can also sell assets to other buyout funds. Although China's buyout fund market has not yet formed a fully liquid ecosystem, I believe this trend will continue. We can also choose annual dividend distributions, or acquisition financing. We did one acquisition financing deal through which we returned most investors' capital in one go. Finally, we can always sell assets to strategic investors.

The present is a golden era for practicing value investing through M&A

I believe the current moment is a golden era for buyout investing. The main reasons are several: first, economic shifts have made many quality companies willing to sell, which was rare during prosperous times. Second, leading enterprises are continuously expanding market share, as the breathing room for innovative challengers is being squeezed. Third, depressed secondary market valuations have dragged buyout valuations down as well — buying cheap is the ultimate principle. Additionally, acquisition financing rates remain low. These factors combined make buyout the most effective alternative investment strategy currently.

Finally, I sincerely thank you all for your attention to buyout investing. Though it remains a relatively emerging field, I deeply believe that in the current historical context, every one of us investors should actively participate, promoting economic development through concrete action. Thank you all again!

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