China Growth Stocks

[derek2000]

HRBN - Bought a little at low 17x.

I am betting in favor of buyout.

Here are my thinking:

1). The PE firm is very serious prior to the start of this DD, otherwise they would not involve big firms such as GS and MS. The relationship with GS and MS are very important for PE firms.
This means that as long as DD is OK, the deal will go through.

2. The DD will focus mainly on the big pictures: future prospect, revenue level and profitability of the company. Those are what actually matters from valuation perspective. Since CEO is part of the buyout, it is likely he is very confident in those areas.

3. Smaller deficiencies within the GAAP accounting will not deter the buyout. Some smaller deficiencies may always find its way due to lack of GAAP trained accountants within the company, and in this case, by association with its current auditor. Those deficiencies generally do not affect the profitability. In a normal deal like this, the PE firm would always pump some money into the company in order to repackage the company for its listing in China and/or Hong Kong. Those deficiencies can always be corrected during the privatization phase.

So overall, I think the chance is very good for the deal.