Daniel Zhang turns around, betting $1 billion on mergers and acquisitions

Author | Zhou Zhiyu

Editor | Zhang Xiaoling

After leaving Alibaba's spotlight, Daniel Zhang has not been idle.

On November 18th, dressed in a dark suit, Daniel Zhang appeared at a forum in Hong Kong as a managing partner of FirstLight Capital. This was not only due to his impressive resume of leading Alibaba for 8 years but also because it marked his first public appearance in his new role as an investor—managing partner of FirstLight Capital—since stepping down as Chairman and CEO of Alibaba in 2023, where he deeply analyzed his transformation journey.

Accompanying his new identity was a significant announcement. Sources told Wall Street Insight that Daniel Zhang, in collaboration with Liu Xiaodan, is seeking to raise $1 billion for their first dollar fund. This fund will focus on consumer, technology, and healthcare sectors related to China, with the core strategy being "Buy & Build."

Three Major Opportunities Emerge

The goal of this new dollar fund, FirstLight Capital, is very clear: China Buyouts.

The fund will focus on sectors such as consumer, technology, and healthcare. Unlike early buyout funds that primarily relied on leveraged buyout financial operations, the strategy that Daniel Zhang is preparing for this fund is not just about acquiring companies but also about building them through deep operations and integration.

Choosing to enter the market at this time, Daniel Zhang's judgment is that the "golden window period" for China's M&A market is opening.

Looking back over the past 40 years, the keyword for China's economy has been growth. Whether VC or PE, they essentially make money from growth.

However, the market consensus has changed. China's economy has entered a stage of high-quality growth. The days of relying solely on scale expansion and traffic dividends are over.

"High-quality growth means the integration of the value chain, which means creating additional value for customers." In such a macro environment, Daniel Zhang has identified three specific trading opportunities.

First, the passing of the baton from the "first generation" of entrepreneurs. As China's private economy develops, the first-generation founders are gradually aging. Not all second-generation successors are willing or capable of taking over. Daniel Zhang has observed that more founders are considering handing their businesses over to professionals, realizing wealth preservation and appreciation through equity sales. This provides a huge asset supply for controlling acquisitions.

Secondly, the asset divestiture of large enterprises. With market development, many Chinese companies have multiple business segments. To incentivize management or unlock shareholder value, many conglomerates are beginning to spin off non-core businesses. This is the main battlefield for buyout funds in mature markets in Europe and America, and it will now also unfold in China.

Finally, there is globalization in mergers and acquisitions. Chinese companies going abroad are no longer simply selling products; cross-border mergers and acquisitions are becoming key to finding new growth curves.

In the M&A landscape, Daniel Zhang is not alone. His chosen partner is Liu Xiaodan, known as China's "Queen of M&A." Liu Xiaodan once led Huatai Securities to rise, achieving remarkable results not only in the domestic market but also managing Huatai International's acquisition of the American AssetMark project, completing a very successful integration.

FirstLight Capital has currently established offices in Beijing, Shanghai, and Shenzhen. At present, the institution's investment portfolio already includes projects such as BYD Semiconductor, Ruichen Pet Medical, and Changjing Technology.

Daniel Zhang commented, "We share common values and have complementary skills." He has experience in operations and governance, while Liu Xiaodan has sharpness in trading and investment banking. He needs like-minded people to work together and do things differently.

"Zoo" Approach

The biggest curiosity from the outside is: Why did Daniel Zhang ultimately choose to pursue mergers and acquisitions?

As a former leader of a top technology company with experience in big data, cloud computing, and artificial intelligence management, many people had suggested to him, "You should go into VC and bet on the next unicorn."

But Daniel Zhang refused. He did not want to be a purely financial investor; he valued his accumulated "corporate governance" skills over the past thirty years.

"My habit is to first assess my abilities and strengths." Daniel Zhang reviewed his career, dividing it into three stages, and it is these accumulations that convinced him he belongs in the PE industry.

The first stage is the empathy of a "professional." After graduating from university, Daniel Zhang started at Arthur Andersen and later moved to PricewaterhouseCoopers. He specifically mentioned a past event: his transition to PricewaterhouseCoopers was not a proactive job change but due to the "Enron incident," which led to the acquisition of Arthur Andersen.

"I completely understood the thoughts and behaviors of the acquired party from the very beginning because I was once one of them." This firsthand memory endowed him with the natural empathy needed to handle the complex human issues in merger transactions—this is the most challenging part of merger integration.

The second stage is the creativity of a "business builder." At Alibaba, he single-handedly created Tmall and promoted the transition from PC to mobile internet. He enjoyed the process of creating a business model from 0 to 1.

The third stage is the governance skills of a "corporate leader." In the later stages of leading Alibaba, he focused more on building teams and setting strategies. He gave a specific example: before GPT was released, he supported DAMO Academy in launching an artificial intelligence laboratory, starting the research and development of foundational models (now known as Tongyi Qianwen).

"I am not a technical expert and cannot personally develop models," Daniel Zhang admitted. But what he did was foresee the future, find the right talents, and provide them with resources to make things happen. He felt satisfied when he saw these talents grow.

Daniel Zhang believes that focusing on corporate governance and helping business leaders grow is his unique moat, which is precisely the core capability most needed by Buyout funds.

In terms of specific operational methodology, Daniel Zhang proposed a concept rich in Alibaba flavor—"Zoo."

"A great team should be a 'zoo,'" he explained, meaning that the team cannot consist of just one type of person; it needs species diversity, with everyone having different personalities and skills but able to collaborate closely In this new "zoo," Daniel Zhang is looking for the chemical reactions of three types of people: investment banking elites who possess extensive market resources and can handle complex transactions; talents who understand both the primary and secondary markets, as the linkage between the two is unprecedentedly close at present; and finally, "operators," which is what Daniel Zhang values the most—those who refuse to engage in empty talk and have genuinely managed businesses and fought battles.

Regarding hiring the core team solely based on interviews, Daniel Zhang has expressed his doubts candidly.

"After investing billions of dollars in a company, deciding to appoint a CEO based on three or four rounds of interviews, totaling 24 hours of contact, is extremely risky." He prefers to establish a deep understanding of talents through long-term attention and building connections before making investments—this is not just recruitment, but also strategic reserve.

Daniel Zhang, who is clearly ready to make another push in the M&A market, has also given all entrepreneurs a piece of advice, which seems to be a message to his new starting point: "Accept imperfection."

In Daniel Zhang's view, entrepreneurship requires constant reflection, but one must dare to make imperfect decisions. If one hesitates in pursuit of perfection and keeps adjusting the model, it will ultimately lead to stagnation.

Risk Warning and Disclaimer

The market has risks, and investment requires caution. This article does not constitute personal investment advice and does not take into account the specific investment objectives, financial situation, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article are suitable for their specific circumstances. Investing based on this is at one's own risk