Ascendent invests $500m in Chinese supermarket retailer

The private equity firm will contribute $150 million from its third China fund, which closed at just over $1 billion at the end of last year. A further $50 million will come from Fund II. This will be the last investment from Fund II, which closed at $600 million in 2015. The deal is based on an enterprise valuation for Wumart of approximately $2.1 billion.

The remaining $300 million is co-investment. Ascendent sourced capital from its own LP base and marketed the opportunity to the wider investor community. The co-investment portion was significantly oversubscribed, according to a source familiar with the situation.

Ascendent constructs relatively concentrated portfolios, sourcing deals by forging relationships with entrepreneurs and management teams, advising on value-add initiatives, strategic alliances, and acquisitions, and contributing capital when appropriate. Wumart fits this profile, with the private equity firm advising on the company’s acquisition of German retailer Metro’s China operation.

Metro announced in October 2019 that it would sell the business Wumart for an enterprise valuation of EUR1.9 billion ($2.1 billion). Several minority investors divested a 10% stake in a separate process and then Metro took a 20% interest in the combined Wumart-Metro entity. The deal closed in April.

Metro launched operations in China in 1996 and established a network of 97 outlets, most of them directly owned. The company served eight million customers and generated EUR2.8 billion in sales and EUR202 million in EBITDA for the 2019 financial year. Metro decided to divest the business as part of broader plans to focus on wholesale operations.

Founded in by Wenzhong Zhang in 1994, Wumart listed in Hong Kong in 2003. It withdrew from the bourse in 2016, citing tougher commercial conditions driven by rising labor costs and competition from online and offline peers. Zhang received a 12-year jail sentence for corruption in 2009 but only served four years and was cleared of all charges in 2018.

Parent company Wumart Group operates more than 1,800 hypermarkets, supermarkets, convenience stores, department stores, and home improvement stores, with annual sales of more than RMB50 billion ($5.7 billion), according to a McKinsey & Company profile. Subsidiaries include Wumart, Merry Mart, Xinhua Department Store, and B&Q. Most of them are based in the Beijing-Tianjin area. The combined Wumart-Metro entity has around 600 stores, the source said.

The company also owns Dmall, an online-to-offline retail platform that partners with more than 100 large retailers and 10,000 brick-and-mortar stores in China. Its app has more than 80 million registered users and 18 million monthly active users.

Speaking to McKinsey in March, Zhang explained how Wumart responded to the coronavirus pandemic. The initial focus was on fresh groceries, consumer staples, and protective equipment. Approximately 3,000 O2O community collection stations were established in response to demand for home delivery and contactless pick-up.

“We believe the coronavirus crisis has brought forward the timeline for adoption of omnichannel grocery services, such as remote ordering and pick-up, by at least one year. Keeping track of how online ordering preferences change under lockdown is also essential; customers sought to vary their diet across a balance of ready meals and home-cooking, and there were significant shifts among top-selling brands,” he said.

Earlier this year, Ascendent agreed to make a full exit from Chinese dairy producer Ningxia Harmony Dairy Development with New Hope Dairy set to buy the business for an enterprise valuation of RMB1.7 billion ($240 million). It acquired a 45% interest in the business for RMB300 million in 2014 from Xinhua Department Store, which had deemed the asset non-core.

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• Topics
• Greater China
• Consumer
• Expansion
• China
• Ascendent Capital
• Growth capital
• M&A