Deal focus: EmergeVest doubles its money on denim deal

Taiwan-listed Roo Hsing and China-based JD United Manufacturer (JDU) used to be competitors: both supply denim jeans and jackets to leading international brands such as Levi Strauss, Gap and Uniqlo. However, with sales flattening, the Taiwanese company was looking for new ways to stimulate growth. A joint venture with JDU was first discussed more than two years ago, but ultimately Roo Hsing decided to buy its larger counterpart.

EmergeVest, a Hong Kong-based PE firm set up in 2013 by two former executives at HSBC’s Asia principal investments division, committed $20 million to JDU in May 2014 with a view to helping the company go public. HSBC had been an investor in the Changzhou-headquartered manufacturer since 2010 and part of EmergeVest’s initial funding round was used to take out this existing shareholder. In 2015, the GP provided another $10 million expansion capital.

Roo Hsing’s acquisition took about two years to complete, finally closing at the end of July. The all-cash transaction worth about $400 million has given EmergeVest its first exit with more than 2x multiple and an IRR of over 25%.

“We have a small number of portfolio companies but we engage at a very deep level with them. In the case of JDU, several initiatives we worked on were around sales effectiveness and key account management. During our investment period, JDU became the number one supplier globally for Levi Strauss and had a deep relationship with other blue-chip brands,” says Heath Zarin, a managing director at EmergeVest.

The GP also helped optimize JDU’s balance sheet, financed new factories, and invested in modern production equipment. For instance, adopting ozone processing machines allowed the company to produce denim in a more economical and environmentally sustainable way, while laser cutting devices reduced an hour-long process to a matter of seconds.

As a result, JDU’s production capacity doubled during EmergeVest’s holding period. The company posted $500 million in revenue last year, up from $300 million in 2014. JDU is also profitable, unlike Roo Hsing, which recorded a net loss of NT$275 million ($9 million) last year against revenues of NT$2.33 billion.

Together, the two companies have become a market-leading denim manufacturer. Roo Hsing plans to integrate its factories – including those in Cambodia and Nicaragua – with JDU’s facilities in Myanmar, Tanzania and China, as part of efforts to realize supply chain efficiencies and reduce costs. It also wants to create a centralized logistics operation to better supply global retailers. 

“Our preference is more towards control deals. JDU was a minority investment but because of our relationship with the founder and management, we were very much hands on,” says Zarin. “However, we no longer do passive minority equity investments. In our opinion, if you’re in a minority position, it’s difficult to add significant value to a company.” 

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• Topics
• Greater China
• Industrials
• Trade sale
• China
• EmergeVest
• Exit