Chinese food groups are outdoing PE in industry M&A

Bright Food has reportedly bid for the 50% stake in Yoplait owned by French buyout firm PAI Partners, submitting an offer that values the company at approximately $2.3 billion - the highest of nine bids that have so far been seen. According to international reports, AXA Private Equity, Bain Capital and Lion Capital may also be in the running. Industry contenders are said to be General Mills, Nestle, Mexican dairy company Grupo Lala and French cheese and dairy producers Bel and Lactalis. Lactalis reportedly made a €1.4 billion ($1.9 billion) bid in November, which was promptly rejected.

Bright Food has not commented on the activity, but it falls in line with a recent spending spree. It recently linked up with Blackstone to take over US nutritional supplement retailer GNC Holdings Inc. in a transaction that was estimated to be worth between $2.5 billion and $3 billion. In September 2010 reports surfaced that Bright Food bid $3.1 billion to buy Britain's United Biscuits, owned by Blackstone and PAI Partners, which acquired the company for approximately $2.5 billion in 2006. And, in 2009 it bought a controlling stake in Yunnan Yinmore Sugar from Goldman Sachs.

Are Chinese companies as buyers something private equity firms should consider when approaching targets? "Yes," says Lunar Capital's Founding Partner Derek Sulger, whose own firm has invested in such food companies. "This trend is probably most relevant to PE funds with a global presence. Chinese companies looking to make overseas acquisitions will need capital, and global PE funds are well suited to add value in transactions requiring global capital markets expertise. The resistance will most likely be superficial and political, and ultimately overcome if the transactions make sense."

Given that it operates four listed companies and claimed RMB61.8 billion ($9.4 billion) in revenue in 2010 (with the aim to generate $12 billion by 2012, according to China Business News), Bright Food is likely to be approved on its bid. Other Mainland holding companies hungry for overseas assets may not be, however. Sources have suggested that authorities still express reservations about Chinese takeovers of domestic food brands, given the disparity of regulations surrounding food and beverage safety.

Yet, while Sulger concedes that recent scandals like the melamine scare have damaged the industry's reputation, he has found that "people generally underestimate the level of sophistication of Chinese businesses, and the degree of quality control required to succeed here."

Industry analysts say that deals like the Bright Food-Yoplait potential tie up are on the rise as PRC brands grow in prominence. Bright Food has been viewed as a leader since its $58 million investment into New Zealand's milk producer Synlait in July 2010.

Likewise, China National Cereals, Oils and Foodstuffs Corporation (COFCO) - China's largest food importer and exporter of its kind - has made smaller-scale acquisitions, such as that of French wine producer Château de Viaud, and Chilean the Biscottes Winery. Beyond the vineyards, COFCO in 2008 purchased a nearly 5% stake in US-based Smithfield Foods, touted as the world's largest pork processor.

On the other side of the equation, overseas deals involving Chinese food makers have included Singapore's Transpac Capital's exit from SGX-listed PRC soy sauce and bean curd business Foodstar Holdings, with a trade sale of around $165 million to Heinz in June 2010. And in 2009, Warburg Pincus exited its stake in juice major Huiyuan following the collapsed acquisition deal of the brand by Coca Cola. Last year, European food producer Danone also completed the sale of its 23% stake in Huiyuan to SAIF Partners for $260 million.

 

• Tweet  
• Facebook  
• LinkedIn  
• Google plus  
• Save this article  
• Send to  

• Topics
• Greater China
• Consumer
• AXA Private Equity Asia
• The Blackstone Group
• Bain Capital Asia
• Derek Sulger
• Lunar Capital Management