Zoyi secures first China-Taiwan deal
Of the cluster of China control deals to emerge in the last few years, a small but significant number can be traced back to Taiwan. These are often family-owned mid-size businesses that were early entrants into mainland China, searching for lower-cost manufacturing and then a large-scale base of new consumers.
They are now searching for answers to several problems, including younger family members who don't want to assume leadership roles and an increasingly difficult commercial environment. PE is a potential partner for these firms, offering the capital and expertise required to sustain businesses and take them to the next level.
The availability of such opportunities is at the core of Zoyi Capital's philosophy.
"There are a lot of successful Taiwan-founded companies that are doing well in China," says Andrew Kuo, the PE firm's CEO. "They face succession planning issues, or they want to upgrade the management team, or they want to expand the platform, and so they are willing to consider selling a controlling stake."
Zoyi was set up last year by Kuo, who previously worked for The Blackstone Group in Greater China, and Pei-Pei Yu and Eric Chen, formerly of Goldman Sachs and Temasek Holdings unit Fullerton Financial, respectively. Last week they completed their debut investment, acquiring a control stake in Pink Mary, a Chinese manufacturer and distributor of high-end women's apparel, for $30-40 million.
Founded in Shanghai in 2003, Pink Mary is known for its elaborate hand-knitted patterns and Baroque style, which are popular among females in the 30-50 year-old demographic. It employs 200-300 people on the product design, sales and marketing side of the business while manufacturing is generally outsourced. The company sells 70,000-100,000 dresses per year at average price point of RMB2,000 ($322) via a network of 400 retail partners throughout China.
However, the younger generations of the founding family are back in Taiwan and don't want to relocate to Shanghai area to run the business. And while Kuo claims Pink Mary has few, if any, direct rivals in China, an influx of generalists is changing the competitive landscape.
Zoyi entered into exclusive negotiations and bought the business, with the founders retaining an equity stake and a degree of operational involvement. The PE firm's to-do list includes expanding Pink Mary's penetration of high-growth tier-two and tier-three cities, and working with retail partners to improve customer relationship management, generating feedback that can be filtered into product positioning.
Maintaining quality and differentiation is also a priority. "An important consideration in apparel is if you remove the tag from an item of clothing, can people still tell what brand it is," says Kuo. "In 50% of cases we think people can still tell it is Pink Mary."
Zoyi is expected to announce a second investment within the next week and a couple more in April.
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