When a consortium of investors, including Carlyle Group, proposed to take Focus Media – a Chinese US-listed advertising group – private on Monday for $3.5bn, it may not have realised that this would be China’s biggest ever leveraged buyout. There have only been nine LBOs of Chinese companies above $250m, according to Dealogic data. The second biggest came in 2008 when Bahrain bank Arcapita took private China’s wind energy group Honiton Energy for $2bn. Why so few?

For one, the legal and structural set-up in China does not lend itself well to LBOs. For Focus Media, its structure as an offshore holding company creates an administrative nightmare. Debt is only serviced via dividends, and buyers have no recourse to onshore assets of the Chinese company (all of them in this case). Buyers are also exposed to regulatory changes in China and there is the execution risk when exiting the investment. Finally, it is hard to convince Chinese managers, who often have holdings, to give up liquid stakes afforded by a listing.

For Focus Media, however, the stars have aligned. Since its boss Jason Nanchun is part of the consortium, management is on board. And thanks to Muddy Waters, which accused the advertising group of overstating the size of its display network, shares are depressed. The consortium’s offer (a one-sixth premium to Focus Media’s Friday share price) values the company at 12 times forward earnings – a one-third discount to JCDecaux. Never mind that Focus Media has a near monopoly on China’s commercial building display advertising market. Nor that the company has seen revenues grow an average 40 per cent over the past two years and has $400m in net cash.