Partners Group backs China baby products retailer in overseas M&A push

The rise of e-commerce is redrawing the competitive map for the maternity, baby and child (MBC) market in China, with a host of pure online and nascent online-to-offline (O2O) players receiving PE and VC funding in recent years. Aiyingshi, by contrast, is a traditional offline player - it has 159 stores across Shanghai, Zhejiang, Fujian and Jiangsu - that is building a presence online.

Kelvin Yu, managing director and head of China at Partners Group, says he was convinced by Aiyingshi's adoption of a two-pronged approach and the underlying dynamics in the MBC market.

"Milk powder, diapers and associated baby products do not account for a significant proportion of income for families in the first-tier cities in which Aiyingshi is most active. The buying decision is therefore about trust, product safety and brand," he says. "E-commerce sites are good for selling low to mid-range products, but for high-end products that require a higher customer touch, specialty retail is the best way."

All the brands stocked by Aiyingshi are foreign. Yu expects to see a bifurcation in the market between high-end specialist retailers like Aiyingshi and e-commerce, with hypermarkets that stock a wide variety of products losing out. E-commerce's MBC channel share was 19% last year and this is expected to reach 38% in five years. While specialty retailers have a defensible position - their channel share is projected to rise from 37% to 39% - supermarkets will fall from 11% to 6% and hypermarkets from 25% to 13%.

This industry transition is also expected to accelerate consolidation. While Aiyingshi is a market leader, its share of the overall MBC space is less than 1%.

The size of the deal was not disclosed but AVCJ understands it is likely to be in the $30-50 million range. Partners Group's arrival facilitates an exit for China New Enterprise Investment (CNEI) and two other shareholders. According to AVCJ Research, CNEI bought a 22% stake in the business for $5.2 million in 2007.

Partners Group has numerous portfolio assets around the world that are relevant to MBC and most of the premium brands in this area are of European origin. Aiyingshi - which was founded in 1997 by Qiong Shi, who remains the CEO - wants its Partners Group to make introductions to potential suppliers and partners. The focus will be on broadening the category range and deepening the company's exposure in existing categories, bringing products to China that are not currently available there.

"We have already made a strong effort to line up potential acquisition targets and targets for licensing discussions," Yu adds.

This is Partners Group's first direct investment in China, although it previously acquired Trimco, a Hong Kong-based garment label manufacturer, with a strong presence in the country. The purchase of Savera, an elevator components supplier of Spanish origin but now headquartered in China, was announced last year but did not go through due to concerns about risk.

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• Topics
• Expansion
• Greater China
• Consumer
• Exits
• Growth capital
• China
• Consumer
• Partners Group
• M&A
• Outbound investment
• Exit
• China New Enterprise Investment (CNEI)