Goodbaby, great exit

The float raised HK$1.47 billion ($189 million) in total, and the 300 million shares were more than 1,450x oversubscribed. The oversubscription level was one of the highest on the Hong Kong Stock Exchange over the past three years.

The IPO price per share, set at HK$4.90 ($0.63), rose 18.4% and closed at HK$5.80 ($0.75) on the first day.

PAG’s exit represents a nearly 6x gross multiple of cost and a over 40% gross IRR, based on Goodbaby’s closing price on 24 November 2010 and the realized proceeds.The firm’s shares are subject to a six-month mandatory lock-up and an additional six month conditional lock-up.

PAG invested approximately $54 million in Goodbaby in June 2006, taking a 67% controlling stake. The deal was touted as the first true LBO in China, with a $52.5 million loan provided by Fubon Bank in 2006, according to the firm.

Rachel Chiang, Non-Executive Director of Goodbaby and Partner at PAG, said that one of the reasons why no LBO deal had been successfully executed in China in the past was cross-border enforcement risks by financial lenders and the difficult regulatory environment. “Fortunately, Goodbaby – at the time of the initial investment – was well suited for an LBO because of the company’s structure and healthy balance sheet, which could attract financial providers,” Chiang told AVCJ.

Chiang explained that PAG’s team spearheaded a number of improvements to the company, including repositioning Goodbaby’s business model from an OEM to an ODM, divesting non-core units to streamline its manufacturing business and negotiating partnerships with international brands to help diversify its product line. During the global financial crisis, many local manufacturers suffered from a decrease in export sales. Goodbaby increased its market share because of the elimination of the smaller competitors in the industry.

While Goodbaby was still in the planning stages of its IPO, numerous other global and local private equity firms reportedly looked at purchasing the company. When asked why PAG did not take that option, Chiang said that the proposals they had received did not represent optimal valuations as many of the firms were bidding low based on the distressed environment. 
Goodbaby designs, develops, manufactures, markets and sells its products through multiple channels in both domestic and international markets as a leading international supplier of durable juvenile products, and in particular, the largest supplier of strollers to North America, Europe and China.

“The key driver for the success of Goodbaby was not by simply being a financial investor, but being a value adding partner with the portfolio company by aligning the interests of PAG with the management,” Chiang concluded. 

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• Topics
• Greater China
• Exits
• Performance
• Consumer
• ARC Capital Partners