3i exits PCD Stores through Hong Kong IPO

The listing raised $377 million through the sale of 1.5 billion shares, giving 3i an estimated 2.2x return on investment, according to a source. This is the second IPO of a Chinese consumer company for 3i this year, with Little Sheep floated in March 2009 for a return of more than 3x.

Sourcing and success

Anna Cheung, Partner and Co-Head of China for 3i, told AVCJ that the deal was originally sourced “through my own network. I knew one of the executives within the company and through him met Alfred [Chan], the Chairman.”

Chan established PCD Stores in 1998 after stepping down as CEO of leading luxury clothing and accessories brand Ports 1961.

Cheung said of the appeal of the company, and of Chan himself, “In terms of what 3i looks for, we want a good management team with a sound business plan, and they have it all there. Alfred has a proven track record with Ports 1961. When I met him, Ports 1961 had been public for two years. It started with a $300 million market cap: by the time I met Alfred, it was $500 million, and one year later it was a $1 billion company.” But his success with Ports wasn’t the only draw.

“The thesis here was that Alfred has a grander vision for a retail empire. Because he’s already operating in China, he knows things about the market that nobody else coming into it would. He can also pick the right location for a department store strategy, because he knows where the growth is,” she added. On 3i’s end, with a track record in the consumer sector both in China and in Europe, previous experience with portfolio companies like GANT in the Nordics, Agent Provocateur in the UK, Little Sheep, D.Phone and John Hardy in China, and UFO Moviez in India made the firm a compelling partner.

Cheung sat on the PCD board, and leveraged 3i’s network to bring European brands to the growing department store group, and to introduce Mme. Laurence Danon, the ex-Chairwoman and CEO of Printemps Department Store Paris, to come on as Senior Advisor. Over the course of the past four years, PCD Stores has grown from four to 16, with one outlet mall. The latter is a new concept in China, a word that did not exist in Chinese, until “Alfred had the vision to launch it,” relayed Cheung.

Strategy skips Tier One cities

Interestingly, from the outset, the strategy of growth and expansion was consistently to focus on second and third-tier cities in China. That includes unlikely candidates for a luxury department store, like Taiyuan, a northern industrial city that accounts for more than half of the nation’s coal-mining output. While these consumers may not be as wealthy as those in first-tier cities like Beijing and Shanghai, a newly affluent population is emerging, with a desire to improve their individual lifestyle – effectively, to shop.

Consumer confidence in these cities is also having a positive effect. In a report released by AC Nielsen, consumer confidence in China in the third quarter of 2009 was at its highest level since mid-2007; more than 57% of respondents described local job prospects as “good” or “excellent” for the next 12 months. Mitch Barns, president of AC Nielsen Greater China, noted in the report, “Companies that focus on innovation and introducing new products to the market will be the ones to drive consumption throughout China.”

In effect, this is PCD Stores’ working philosophy, offering over 1,600 luxury brands to consumers outside of Tier One cities; names like Armani Collezioni, Burberry, Cartier, Ermenegildo Zegna, Hugo Boss, Ralph Lauren and Chan’s former company, Ports 1961.

The group has always been strong – it achieved revenue and profit CAGR of about 100% in the last two years alone – but Cheung said that now was the right time to IPO. “There was a previous attempt in 2007, but timing-wise it sort of missed the window. There’s a lot more to show for the company now, so really it’s just a case of whether you grow to this size with the help of the stock market or put in the hard work before you list.”

Cheung said the firm is very pleased with the returns, and with the recent exit performance in a tough year for everyone. Since the second half of 2009, “we’ve been very busy and working hard.” And while the consumer play will continue to be an integral part of 3i’s focus in China, “you will see us doing more in other sectors as well,” naming alternative energy, industrial plays and business services.

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• Topics
• Consumer
• Exits
• People
• Expansion
• Greater China
• Anna Cheung
• 3i Asia Pacific