Actis exits Xiabu Xiabu in secondary sale

Discount this outlier, however, and the statistics are still notable for the jump in secondary buyouts specifically. Three transactions in 2012 - more than the previous three years combined - saw control pass between private third-party investors, most recently Actis' sale of hotpot chain Xiabu Xiabu to General Atlantic.

"We expect to see more secondary exits," says Meng Ann Lim, head of China and Southeast Asia at Actis. "Many funds are getting bigger and bigger; they started out doing growth capital but now they do more control deals. Our strategy is to invest in medium-sized businesses and grow them to a size where financial and strategic buyers are keen."

Lim claims that so many PEand strategic players expressed an interest in Xiabu Xiabu that he lost count of the final total. The transaction size wasn't disclosed but he describes it as one of Actis' most successful investments in China.

The PE firm acquired a majority stake in the restaurant chain in 2008, paying $51 million. Xiabu Xiabu now has more than 300 outlets, but when Actis first identified the company there were only 40, and 60 by the time the deal closed.

"A lot of restaurant chains in China get to 30-40 stores and stay there because they don't have professional management," Lim says. "These chains are run by the founders and so they rely on a small number of people. After we invested in Xiabu Xiabu we helped professionalize the management team, put in place the right strategy and developed institutionalized processes."

Part of the appeal was that these processes could be scaled up rapidly. Hotpot is a fairly standardized compared to most Chinese cuisine and the fact that the diners do the cooking themselves means a centralized kitchen can be used and there is no need for chefs at each site. Furthermore, XiabuXiabu offers diners individual pots instead of a communal pot at each table.

"It attracts a different kind of customer - more females than males, and more young working adults who eat out a lot but perhaps not in the big groups you usually need for hotpot," Lim says. "Individual hotpot is also more hygienic and flexible, because you can choose your own ingredients."

Actis' most recent China restaurant investment, Bellagio, is unlikely to reach the scale of Xiabu Xiabu because it offers casual rather than quick service dining. However, there are commonalities: neither has ever closed a restaurant, suggesting strong repeat business; and 80% of Bellagio's customers opt for 3-4 signature dishes, which means food standardization is less of a challenge, much like XiabuXiabu.

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• Topics
• Exits
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• Secondaries
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• General Atlantic