HarbourVest backs secondary restructuring of Capital Today investment

Capital Today committed RMB100 million ($14.4 million) for a 18.85% stake in Yifeng in 2008, according to AVCJ Research. At the time, Yifeng was the 16^th largest player in its market with a footprint restricted to Hunan province. The following year the private equity firm put in another RMB100 million, increasing its equity interest by 15.79%. Both investments came from Capital Today China Growth Fund, which closed at $280 million in 2006 and has reached the end of its life.

Yifeng is now one of the largest retail pharmacy chains in China, with more than 3,000 directly-owned stores, primarily located on the country's eastern seaboard, as well as a dedicated e-commerce channel. It went public in Shanghai in 2015 with a market capitalization of RMB3.12 billion. The stock closed at RMB52.47 on November 16 – up from an IPO price of RMB19.47 – valuing the business at more than RMB19 billion.

Capital Today has also evolved since that initial investment. For its third fund, the private equity firm switched to an evergreen structure, enabling it to support companies for longer periods and not come under pressure from LPs to exit within a set timeframe. The secondary deal for Yifeng appears to be in keeping with this philosophy.

Capital Today owned 76 million shares, or a 20.96% stake, in Yifeng at the end of 2017, according to the Shanghai-listed company's most recent annual report. Yi Gao, Yifeng's founder, had 152.4 million shares, or 42.03%. The Capital Today interest, which was held across two investment vehicles, has now been transferred to a new entity, Capital Today China River Fund, a filing indicates. Control still resides with Kathy Xu, Capital Today's founder.

A separate filing notes that the transaction includes around $250 million in cash from new investors, suggesting some LPs in the original fund are rolling over their interests. HarbourVest accounts for about 100 million of the 423 million shares in the River Fund, while entities tied to Capital Today or Xu have a further 92 million shares. Other investors include Australia's Commonwealth Superannuation Corporation, Iconiq Capital, International Finance Corporation, Neuberger Berman, PineBridge Investments, and Roc Partners.

Yifeng recorded sales of RMB4.81 billion in 2017, up from RMB3.73 billion the previous year. Over the same period, net profit increased from RMB223.9 million to RMB313.5 million.

Lazard is said to have served as sole financial advisor to Capital Today on the transaction.

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• Topics
• Greater China
• Secondaries
• Healthcare
• China
• Capital Today China Group Company
• HarbourVest Partners
• Secondaries