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2010 Potential China Pe Investment Themes 22 Jan09
2010 Potential China Pe Investment Themes 22 Jan09
2010 Potential China Pe Investment Themes 22 Jan09
2010 Potential China Pe Investment Themes 22 Jan09
2010 Potential China Pe Investment Themes 22 Jan09
2010 Potential China Pe Investment Themes 22 Jan09
2010 Potential China Pe Investment Themes 22 Jan09
2010 Potential China Pe Investment Themes 22 Jan09
2010 Potential China Pe Investment Themes 22 Jan09
2010 Potential China Pe Investment Themes 22 Jan09
2010 Potential China Pe Investment Themes 22 Jan09
2010 Potential China Pe Investment Themes 22 Jan09
2010 Potential China Pe Investment Themes 22 Jan09
2010 Potential China Pe Investment Themes 22 Jan09
2010 Potential China Pe Investment Themes 22 Jan09
2010 Potential China Pe Investment Themes 22 Jan09
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2010 Potential China Pe Investment Themes 22 Jan09

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Opportunities for Private Equity Investment in China in 2010 in Consumer Retail sector

Opportunities for Private Equity Investment in China in 2010 in Consumer Retail sector

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  • 1. “China Private Equity 2010 and Beyond .. Equity– Consumer-Driven Investment Themes” Driven Jan 2010 GLOBAL CHINA CAPITAL Shenzhen, ChinaJan 2010 Version 3.0 by KC Yoon kcyoon07@gmail.com PROPRIETARY & CONFIDENTIAL
  • 2. Presentation Outline China weathers crisis well and emerges with stronger economic foundations FOUR: ONE: Strength TWO: Broad- THREE: Govt Increased in domestic based drive for focused on market consumption Domestic PE fundamentals competition Funds flow into domestic economic sectors Maturing PE Market Government taking active role to promote Private Equity investments Other Global Trends Trends: Key Consumer Trends and Potential impacting PIPE/RMB Investment Themes China Fund TWO: Internet – THREE: Changing ONE: Domestic Brands Changing the Traditional Lifestyle of Middle-class Going Nation-wide Business China Jan 2010 Version 3.0 by KC Yoon
  • 3. 2009 Recap: Macro-Factors Driving China’s Future Consumer Economy Factors Over 110 high- consumer potential cities with 34% of 3 GDP IKEA continue to open 2 stores/yearBy 2015, >300M Demand for Housing Housing- Sunning plans 500sqm lower-middle related products and stores in the rural areas class; 100M Growth of Chinese services targetting for 3000 luxury consumers Middle-Class Preident 7-11 to open3-7 Demand for lifestyle & stores in Shanghai plans convenient services for 300 stores in 3yrs > 200 Cities China Chain Nepstar with >1M residents Urbanization and Demand for better drugstar opem/acquire 700 healthcare stores 2008, plans 3000 Growth of Cities Sunning plans a B2C site Growth of B2CNOW >300Musers; >RMB 120B online Growth and Impact Most widespread Korea SKTelecom to invest RMB500M in qingxuan its consumer of the Internet media- media access middle- B2C site sales class consumers Letao to open largest Jan 2010 Version 3.0 by KC Yoon Retailers online toy store in China continue to expand network
  • 4. 2009 Recap: Key Consumer Trends with Investment Potential Criteria for Strong 3 + Investment 1 Potential Affordable Luxury for the Young Large MarketGrowth of Chinese Affluent Middle-Class “Mass Market” + “Good Enough” Products High GrowthUrbanization and “City-Living”Growth of Cities Consumer Services Able to Online Consumer Sustain GoodGrowth and Impact Brands Margins of the Internet “Knowledge” Services Defensible Govt Stimulus “Health”+ “Well- Niche being” Services +“GREEN” - Increasingly Jan 2010 Version 3.0 by KC Yoon important Global trend
  • 5. Recap 2009: Investment Ideas Emerging “luxury” brands in jewellery, Niche “Luxury” cosmetics & ladies accessories ( (eg. Brands Unique hairpin retail combined with strong service element)Right Retail chains in 2nd/3rd tier citiesStrategy Chains in Inner Retail Cities where growth potential is high and= also target for M&A by larger playersWinningFund “Quick Fashion”- -Success of ZARA Affordable “Luxury” + shows ready market for “affordable” “Mass Market” luxury targetted at the mass market; “Online ecommerce and other Online services will continue to grow as Consumer/Ecommerce China becomes leading interent Services nation” Profitable and high growth segments Education Services in K12, English Education & Adult Education (IT& Vocational Training) Jan 2010 Version 3.0 by KC Yoon
  • 6. 2010 :Same 3 Core Drivers but with New Focal Points 3 potential cities with 34% of Over 110 high-consumerGrowth of Chinese GDP Middle-Class Broader Consumer baseUrbanization andGrowth of Cities 2nd/3rd Tier Cities New Growth Internet+ Mobile Drives Brand Areas Accessibility + ReachGrowth and Impact of the Internet Mobile Drives New Needs Jan 2010 Version 3.0 by KC Yoon
  • 7. Investment Theme 1 : Domestic Brands Going National - Consolidation & M&A & Development of Market Leaders Factors Supporting & Driving Consolidation Sectors Impacted Market Activities Observed FOREIGN INTEREST IN DOMESTIC MARKETS: Convenience Retail, F&B services, FMCG products, where foreign retailers bring edge in management Tsingtao acquisiition know-how & technology or acquire domestic brand of Ji’an brewery to Electronic Retail, Mobile Retail, Supermarket, into portfolio consolidateRight Sportswear & apparel retail, Education Shandong marketStrategy FRAGMENTED MARKET SEGMENTS: where there= are no clear market leaders with significant market shareWinningFund THIN MARGIN MARKET SEGMENTS: profit margins are thin and economies of scale are critical PE investment in mobile retailer FunTalk to acquire 6 regional distributors to become No.1 distributor/retailer of Mobile phones in China before listing on EXPAND RETAIL REACH: Strong brands targeting NASDAQ to reach inner cities/grow from regional to national network quickly MULTI-BRAND/PRODUCT/SERVICE PORTFOLIO: Decreasing growth rates from existing Listed Chinese Education service players brands/products- need new revenue drivers have begun M&A (Chinacast acquisition of 2 universities; Noah acquisition of Little Star children education) in order to develop national footprint & diversify service lines Jan 2010 Version 3.0 by KC Yoon
  • 8. Investment Theme 1: Potential Investment Targets Leading Niche Domestic Regional Retailers/ Services Strong Brands with Brands with Strengths in with Strong nd /3 rd Tier Distribution Nationwide Potential currently Growing 2 nd /3 rd Tier Markets limited by distribution reach 2 Network Leading regional brands in Supermarkets in inner cities, Larger well-established brands orcosmetics, personal care, Food & restaurant & food service chains, global brands that has potential to drinks, fashion wear, etc etc be national market leader• Dabao domestic personal care •Fujian-based supermarket retail chain • Burberry – franchised operations inbrand acquired by P&G for dominates 2nd/3rd tier cities and China acquired by parent brandUSD300M operates at higher higher-then industry recognizing strong market potential margins• Regional fashion sportswear brand • Ladies shoe brand retailer with • KungFu Catering invested by leading strong product but growth cpr to VCs industry peers limited by lack of expansion funds Jan 2010 Version 3.0 by KC Yoon
  • 9. Investment Theme 2 : Internet+ Technology Led Growth of New Niches from Traditional Factors Supporting & Driving Growth Sectors Impacted Market Activities Observed INTERNET & TV DRIVES NEW CONSUMER RETAIL CHANNEL : allows consumer access to new brands & products+ brands nationwide reachRightStrategy TRANSACTION INFRASTRUCTURE: Electronic Retail, Mobile, fashion IMPROVING internet B2C/;C2C services (especially clothing) retail,= efficient online payment systems + low cost delivery drive transaction increaseWinningFund Explosive growth seen in online retail especially clothing which by 2009 has captured SHIFT IN VALUE PROPOSITION : may often result RMB2.4 billion or 9.7% of total clothing retail. in creation of a new business service/model VANCL founded only in 2007 & invested by leading VCs SAIF, IDG is the market leader with 24% market share EXPAND BRAND REACH: extensive reach of internet + mobile into young consumers help to rapidly build brand awareness IMPACT OF SOCIAL INTERNET : peer opinions on brands, products, etc can influence consumer behaviour Jan 2010 Version 3.0 by KC Yoon
  • 10. Investment Theme 2: Potential Investment Targets Innovative new retail channels leveraging new media New Business Models resulting from internet + mobile + other (internet/mobile/digital TV)+ value proposition shifts supporting infrastructure • Mobile content download retail service as a result of growth of mobile users and obstacle to access content • Mobile Propriety Customer Mobile Content Interface + Attractive Operators/ Providers Retail Kiosks + Mobile Sales of China’s TV Professional Service Retailers Shopping will reach Innovative Business Models RM B 20billion in 2008New retail channels with nationwide reach at low cost• Hunan TV & Taobao launching TV •ALIMAMA is a micro-ad exchange & micro-retailHome shopping channel to target site targeted at consumerslucrative & growing market Jan 2010 Version 3.0 by KC Yoon
  • 11. Investment Theme 3 : Changing Consumer Lifestyle of China’s Urban Middle Middle-class Factors Supporting & Driving Growth Sectors Impacted Market Activities Observed Education Services, Media & Entertainment, Travel FOCUS ON HEALTHY LIFESTYLE: drives demand Healthcare Devices + Services, Pharma Retail, for healthcare products/services, sports servicesRightStrategy ON SELF-IMPROVEMENT & PERSONAL FOCUS Pearson acquisition of China’s WSI- leading English learning school= IMAGE: range of consumer-focused services from beauty-care, adult education, sports coaching, etcWinningFund DEMAND FOR STATUS with increased affluent also demand association with luxury brand/service Sequoia’s investment into China’s leading animation company as demand ENJOY GREATER LEISURE & ENTERTAINMENT: for cartoon/animation content grows affluence drives consumers towards spending more leisure time Estimate 8m Chinese play tennis with penetration in urban areas increasing. SPENDING ON CHILDREN NEEDS: greater Currently lack of tennis affordability to spend on “single” child facilities hampering growth of sports Jan 2010 Version 3.0 by KC Yoon
  • 12. Investment Theme 3 : Potential Investment Targets Lifestyle & entertainment value chain, Healthcare products, medical service & Niche-domestic luxury product/services pharma retail Healthy lifestyle + family- Family/Home use healthcare Medical service retail & Niche Luxury-products focused entertainment Supplements & equipment hospital services lifestyle services content & services• Home-grown fashion • Invest in content creation • Family-use home • Leverage on Govt drive todesign houses /animation companies healthcare check-up devices implement rural healthcare network• Beauty/spa chain offering • Family-focused Chinesetraditional Chinese cures & history-based themedtreatment retail/entertainment venues;• Tennis Academy • Regional cuisine themed Food service Jan 2010 Version 3.0 by KC Yoon
  • 13. Potential Investments Targets Across Core Themes Lifestyle/ Entertainment Lifestyle retail brands Services Delivering leveraging offline +online Innovative Service presence to extend leveraging brand presence & internet/mobile nationwide technologyONE: Domestic Brands Going Nation-wide TWO: Internet –Changing the Traditional Business THREE: ChangingLifestyle of Middle-class China Jan 2010 Version 3.0 by KC Yoon
  • 14. PE Investments in China’s Retail & Consumer Sector in 2009 Investor Fund Sector Company Company Value Fund/ Remarks Remarks Invested Company Consumer Food Yashili Group , Carlyle Group • 17.3% for between USD100-200M Products- Infant Milk Guangdong • Intention to build industry leader in growth market Powder with strong 2nd/3rd tier city distribution Consumer Food Modern Dairy, Anhui KKR • Minority investment Product- Dairy • Intention to grow market leader with large scale modern farming technology Consumer Fashion Daphne International TPG • USD80M for minority stake Brands (HKSE) • Market leader in value lady shoe segment - Ladies Shoes Consumer Food Golden Han Unknown • 30% for USD42M Service- Restuarants Restaurant ChainConsumer Fashion – Guangzhou Meishan Legend Capital • USD10M for minority stakeHair Accessory Retail • Fast growth & high margin fashion accessory retailElectronic & Appliance GOME Bain Capital •18% stake for USD430M Retail (HKSE) • Value-add to improve management efficiency in China’s largest player Consumer Retail- Wumart Inc TPG, Legend & • USD212 for 11% Supermarket Retail (HKSE) Hony Capital Version 3.0 by KC Yoon
  • 15. M&A Transactions in China’s Retail & Consumer Sector in 2009 Investor Fund Sector Company Company Value Fund/ Remarks Remarks Invested Company Acquisition by domestic companies Consumer Food Beijing COFCO • 100% for USD16M Product- Wugaodaochang • New product line which will benefit from COFCO’s Instant Noodles Food large distributionConsumer Retail- Dalian Dongzhijie Pou Sheng • 70% for USD122MSportswear Retail Sports International • Acquisition to access over 440 new distribution (HKSE) POSs Consumer F&B- Ji’An Beer Group Tsingtao Brewery • 100% acquisition for USD37M Beer & Brewery • Consolidation of Shandong beer marketRetail Supermarket Times, HK-based Wumart, Wumart Beijing’s • Majority stake for ~USD560M Supermarket chain largest Supermart • Acquisition of management knowhow & operations technology Education- Little New Star Noah Education •100% acqusiition for USD113M Education • Gain revenues & new market reach Cross-border acquisitions Consumer Food Little Lamb Hotpot YUM Inc • 13.9% stake Service- (HKSE) • Expansion of domestic-brand food service portfolioFood Service Chain in China Education- Wall Street English Pearson PLC •100% acquisition for USD145M English • Pearson building domestic business presenceConsumer Fashion Shanshan Group Itochu (China) • 28% for USD111M Brand- Apparel • Build domestic business Version 3.0 by KC Yoon
  • 16. Other Notable Features of China PE Transactions in 2010 Include investments into under under-valued listed consumer/retail entities ( (eg. SGX) Deal Sources with objective to add expansion capital & drive As market leaders build market share & consolidate market, opportunities to exit Exits through investments in smaller brands/companies Trade Sale by identifying potential strategic portfolio owner in trade saleJan 2009 2010 Version 2.0 by KC Yoon 3.0

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