China Outbound M&A Opportunities- Identifying Attractive Global Consumer Brands


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As the Chinese economy continues to grow, we see an expanding middle-class of Mass-affluent Chinese consumers who are creating demand for consumer brands and services.
1.With the young and limited domestic consumer brand market, significant opportunities exist for foreign consumer brands (esp. luxury and premium foreign brands), consumer technology & services to fill the demand gaps.
2.Chinese brands can learn much from partnerships and ventures with experienced foreign brands as they attempt to go global.
3.China-based PE Funds are also shifting their focus away from investments in domestic market towards more attractive M&A opportunities in foreign brands (seeking capital due to weak domestic markets)

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China Outbound M&A Opportunities- Identifying Attractive Global Consumer Brands

  1. 1. China Outbound Private Equity.. Identifying Attractive Global Consumer Brands.. Apr 2012BY:BY: KC YOON & MATT BRANDTGLOBAL CHINA CAPITAL, SHENZHENEmail: CONFIDENTIAL
  2. 2. “Upwards” Growth in ChineseConsumption ..DrivenPrimarily by Unique Segmentof Mass-Affluent Mass-Consumers.. CONFIDENTIAL
  3. 3. Source: McKinsey 2012: Chinese Consumers 2020Growth of Chinese 170M Mass-Affluent Base by Middle-Class300M+ Households Mass-Affluent >50% 2020 Urbanization and Growth of Cities>200 cities over 1M 2nd/3rd Tier Cities New Growth Areas >60% Urban Pop. Across 400+ cities Impact of the Internet- 900M users Mobile & Ecommerce New Channels Source: iResearch report 2009 CONFIDENTIAL
  4. 4. Unique Characteristics &Needs of China’s MassAffluent - Create MarketOpportunity for Range ofConsumer Brands & Services CONFIDENTIAL
  5. 5. Unique Behavior Drives Increasing Urban Household Discretionary Consumption Pattern Consumption 2020: 80% of Urban Chinese Household Spend on Non-necessities >US$3.5 trillion Spend by 2020!! Chinese men play significant role in driving consumption CONFIDENTIAL
  6. 6. Market Segments that Fulfill the Following Attractive Categories of Consumer Needs Market Segment! Affordable Luxury for Fashion the Young Affluent Significant Apparel & Market Accessories “Premium” Products to Pamper/Show Status QSR Food High Services Growth Services for the Urban Consumer Personal Attractive Devices Online Services with Margins Access to Brands Education Services that Services Defensible Enhances Career & - Brand, Job Prospects Tech, Svc Health Food Services to maintain & Snacks“Health”+ “Well-being” Examples of successful Consumer brands & services targeting Mass-Affluent CONFIDENTIAL
  7. 7. Attractive , High GrowthPotential Consumer MarketSegments – Future Demandfrom China’s Mass AffluentConsumers CONFIDENTIAL
  8. 8. Consumer Goods & ProductsMass Affluent Rationale Potential Domestic Value of Foreign RemarksConsumption Market Industry Brands SegmentFashion Apparel, • Trade up strong RMB 1.3 trillion • Fragmented • Established Global AttractiveAccessories & • Willingness to try new brands (2020e) market luxury brands Segment forSportswear • Large share of spend • No clear leader; • Global distribution foreign brandsBrands & Retail • Increased casual time; niche • Few luxury-status activities domestic brandsPersonal Care & • 3rd largest & growing market RMB 255 billion • Limited local • Strong marketing RegulatoryCosmetics • Trade-up strong (2015e) brands • R&D & Hi-tech in hurdles key • Chinese men also big • TCM-based products obstacle to consumers of personal care products • High safety market entry upcoming standardsProcessed • Increased concerns about food Largest global • Fragmented • Advanced Chinese GovtFoods, (snacks, quality &safety makes foreign market for industry- many processing tech encouragingdiary, health brands attractive dietary small food • High QC & safety foreign co helpfood & drinks, • Wealthy consumers willingness supplements processing co. standards upgrade to spend on healthy well-being • Food safety • Premium branding domesticorganic food), (2020e) • Snacking is increasing issues eg, wines, health industryVitamins & supplementsNutraceuticalPersonal • Display of personal wealth & • Fast cheap copy- • Global brand status Apple’sDevices – status cats • Worldwide service iphone/ipadrecreational, • Younger generation tech savvy • Increasing support good case of • Music, online gaming, online innovativeness • Leading edge foreign brandentertainment, entertainment integral part of e.g. mobile phone technology winnercommunications Chinese social liveConsumer • Urban living- seek convenience • Strong domestic • New technologyappliances brands exist for • Cutting edge general appliance appliance design List is not meant to be exhaustive but represents major opportunities CONFIDENTIAL
  9. 9. Consumer ServicesMass Affluent Rationale Potential Domestic Value of Foreign RemarksConsumption Market Industry Brands SegmentEducation & • Chinese traditional focus & RMB 900+ • Fragmented & • Education Chinese GovtKnowledge willingness to pay for billion (2015e) open market technology keen onServices education • Strength in • Innovative improving • Significant spend size distribution and teaching methods education operations standardsFood Services • Urbanisation trend 750M Fast Food • Fragmented • Brand & Marketing Foreign QSR& QSR Brands middle-class consumers market RMB market; few • Consistency i.e. KFC are 2020 – dining-out rate still 400 billion nationwide • Strong QC & leading brands low vs. global (2015e) domestic QSR management • Clean dining & safe food chains systemHospitality, • China top tourism 2X Number of • Service quality & • Established Potential forLeisure & Travel destination by 2020 hotel rooms standards not yet hospitality brands mid-scale brandServices (Hotels, • Chinese spending more (2020e) global par • Strong serviceAmusement time on leisure activities • Fragmented, culture, talent &Parks, Car dominated by managementrentals, sporting non-branded 2-3 systemevents, etc) star operatorsMobile & Web- • Internet-savvy population eCommerce • Dominated by • Access to global Combination ofbased Services • eCommerce market rising RMB 1.5 domestic industry supply chain & foreign network(inc.eCommerce) exponentially trillion (2013e) leaders source of goods with domestic • Online gaming operationsConsumer • Upgrade of healthcare • Upgrade of • AdvancedHealthcare system service in healthcare mgt • Increasing elderly progress • Hi-tech population List is not meant to be exhaustive but represents major opportunities CONFIDENTIAL
  10. 10. Market Foreign Growth Brand Value- Potential Market Domestic added size Brand CompetitivenessMarket Fashion Personal Food & Personal Consumer Edu & Food Hospitality Mobile & HealthSegment vs Apparel Care Beverage Device Appliance Knowledge Service Service Web careScreen Service Service serviceCriterionMarket Size 4 3 4 3 4 4 3 4 4 4Growth 4 3 3 4 3 4 3 3 4 3PotentialOpportunity 4 3 4 3 3 4 4 4 2 4W DomesticCompetitionForeign 5 5 5 5 3 4 5 5 3 5BrandValue-add 17 14 16 15 13 16 15 16 13 16 Assessment Rating : 1 to 5 (5 being strongest) Most Attractive Segments CONFIDENTIAL
  11. 11. Analysis of Segment toFurther Identify SpecificSector Targets - PremiumPositioning due to Brand,Technology or Unique Service CONFIDENTIAL
  12. 12. Brand Fashion Apparel, Accessories & Sportswear 1 Attractiveness & Value of Foreign Brands Market Opportunity Brand story & history (esp. European brands) Strong design and material technology content Bring brand management skills Established fashion design & output cycle linked to global fashion trends Established global marketing & distribution network Strong links to global media and entertainment industry Impact on Domestic MarketO Fashion houses start to build & own portfolio of brands BCG’s Analysis of brands with niche market potentialO Closer interaction and collaboration between brands Global brands continue to enter thewithin China’s domestic fashion industry Chinese market- Recent cases- GAPO China’s fashion industry slowly integrates into (2011), A&F (2012), IZOD (Licensed) global fashion ecosystem as original brands CONFIDENTIAL
  13. 13. Fashion Apparel, Accessories & Sportswear 2 Target Market Segments•Female lingerie•Female/male office wear•Female/male premium casualwear•Sports performance brands•Board, surf and street wear brands•Fast Fashion – Premium•Mass-premium accessories- Fashion jewellery CONFIDENTIAL
  14. 14. Brand Industry- Food & Food Industry- related Products 1 Technology Attractiveness & Value of Foreign Brands Market Opportunity Global branding brings consumer confidence in China Advanced food processing technology Higher quality control & food safety management standards Access to foreign food production resources Food 2020 Report Established global marketing & distribution network Impact on Domestic MarketO Consolidation of domestic food processing industryO Demise of weak brands Deloitte market analysis 2010O Upgrade in overall food industry technology, QC & Chinese companies have been Food safety standards actively investing in agro-productionO Consumers gain access to wider choice of packaged resources, food brands esp. in the & processed food diary sector CONFIDENTIAL
  15. 15. Industry- Food & Food Industry- related Products 2 Target Market Segments•Dairy products esp Milk Powder•Organic food•Nutraceutical food supplements•Health, Energy Drinks & Juices•Snacks- chocolate; nut-related snacks•Wine & Premium Beers CONFIDENTIAL
  16. 16. Service Educational & Knowledge Expertise Services 1 Technology Attractiveness & Value of Foreign Brands Market Opportunity Bring world-class teaching methodologies; educational programs & technology Access to educational talent Access to global business leaders for management education Established global marketing & distribution network Strong links to global education ecosystem C BDA market analysis 2010 China’s (2010-2020) plan for education reform will significantly increase the student throughput through the system (see below) Impact on Domestic MarketO Consolidation to create industry leaders- nationwide education service providerO Inflow of global educational methods & teaching Pearson PLc recent acquisition of technology into the market Chinese English Educational Provider Global Education & Tech Group (NASDAQ:GEDU) CONFIDENTIAL
  17. 17. Educational & Knowledge Services 2 Target Market Segments•Kindergarten-pre-school + K-12 Tutoring•Service-industry focused higher & professionaleducation•Creative Media & IT training•Business Management Education & Seminars•Education Tools & technology + e-learning platforms CONFIDENTIAL
  18. 18. Service Expertise Hospitality & Leisure Hospitality , Recreational Services 1 & Leisure Services Brand Attractiveness & Value of Foreign Brands Market Opportunity Global hotel management knowhow & technology Strong service & talent grooming culture Global marketing & distribution network Brand familiar to foreign visitors/tourists to China Impact on Domestic MarketO Consolidate non-branded fragmented players into Thayar Lodging Group Report 2010 larger nationwide branded chainsO Upgrade overall industry service standards Recent several cases of acquisitions of foreign hotels & resort brands by domestic companies CONFIDENTIAL
  19. 19. Hospitality, Recreational & Leisure Services 2 Target Market Segments•Mid-scale Hotel Brands•Themed Resort Chains•Theme Parks•Beauty & Spa Brands•Service providers/Media platform in the global travelecosystem•Fitness Clubs & Sports Academy CONFIDENTIAL
  20. 20. Service Expertise Consumer Healthcare 1 Technology Attractiveness & Value of Foreign Brands Market Opportunity Hi-tech Innovative technology Significant R&D invested Well-designed & ergonomically superior High quality and reliability Better service level provider Global after-sales support Impact on Domestic Market Target is that by 2020 Universal healthcare willO Improve overall standard and accessibility to be available to all Chinese citizens healthcareO Bring mobility to healthcare Investment interests from foreign players in Chinese healthcare industry CONFIDENTIAL
  21. 21. Consumer Healthcare 2 Target Market Segments•DIY Healthcare personal devices•In-home Monitoring/Homecare Network•Online healthcare services•Lifestyle health services i.e. cosmetic surgery, TCMacupuncture, massage therapy, dental•OTC Drug retail•Mobile healthcare eg. iphone-based apps CONFIDENTIAL