Bain completes exit from China's Gome

According to a term sheet cited by IFR, Bain planned to sell 922 million shares at HK$1.12-1.15 apiece, which represented 2.5%-5.1% discount to Wednesday's closing price.

The private equity firm invested in the company in June 2009 when Guangyu Huang, Gome's founder and major shareholder, was under investigation by the police. He was subsequently sentenced to a 14-year prison term for bribery and other illegal business practices.

Bain subscribed to convertible bonds worth RMB1.59 billion ($233 million), giving it a 9.98% stake. The PE firm also agreed to underwrite a parallel open offer that could have taken its overall investment to $446 million and its equity interest to 23.5%. However, Huang reasserted control by upping his stake in the business through the open offer. 

In July, Bain sold a 5.4% stake, or 922 million shares, in Gome at HK$1.3 per share, raising $130 million.

Gome was troubled by a power struggle between Huang and the company's chairman, Xiao Chen, in the early years of Bain's investment. Dazhong Zhang, founder of Beijing Dazhong Electrical Appliances, which was bought by Gome in 2007, came in as chairman in March 2011 after Chen resigned.

The company, like many traditional offline retailers in China, also faces intense competition from e-commerce platforms. The electronic appliance market descended into a price war when JD.com offered to cut its gross margin to zero in 2012. Suning Appliance, China's largest electrical appliance retailer and a Hony Capital investee, and Gome in turn offered to match or undercut JD's prices.

Gome saw its net profit slip from RMB1.98 billion in 2010 to RMB1.86 billion in 2011. The firm made a loss of RMB728 million in 2012 but returned to profit in 2013.

Both Sunning and Gome are trying to transform their businesses by integrating offline and online elements of the entire retail process, from procurement to shipment to after-sales services. Gome reported a net profit of RMB693 million in the first half of 2014, up from RMB322 million in the same period of 2013, in part due to rising online sales. Revenue rose from RMB27 billion in the first six months in 2013 to RMB29 billion in 2014.

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• Topics
• Greater China
• Exits
• Consumer
• China
• Exit
• Bain Capital Asia
• Consumer