CVC buys into C.Banner’s organic growth story

"It always struck us as a good business - it has at least 10 years of net profit growth, steady margins and strong like-for-like sales growth," says William Ho, a partner at CVC Asia, which last week invested $59.8 million in the company. "And we really liked the fact that growth has been organic. When you do acquisitions in China, you can hide a lot."

CVC has purchased RMB138.6 million ($21.8 million) in convertible bonds and HK$294.5 million ($38 million) in exchangeable bonds issued by the Hong Kong-listed Chinese company. The private equity firm has a significant minority stake and Ho will join the C.Banner board. As part of the transaction, the two parties also agreed on a business plan to take the company forward.

China Consumer Capital Partners and MouseeDragon invested alongside CVC, using a similar package of convertible and exchangeable bonds. They committed $24.8 million and $9.9 million, respectively.

CVC has identified a number of value creation initiatives to further improve C.Banner's business. These are likely to foucs on areas such as management reporting, efficiency and inventory controls. The latter is an area upon which Chinese retailers in general are increasingly focused, having initially concentrated on building out their businesses.

C.Banner designs, manufactures and distributes its products under five brands: C.Banner, Eblan, Sundance, Mio and Naturalizer. The first four are self-developed. The company has a 7.4% share of China's mid-to-premium women's footwear market and is far smaller than industry rivals Belle International (13,100 branches) and Daphne Holdings (6,100 branches). However, the expectation is that C.Banner is still far from saturation point. Revenue came to just over RMB2 billion in 2011, up 29.8% year-on-year, while profit rose 70.8% to RMB290.2 million.

"We have agreed to run the business in a way that's more suited to institutional shareholders," Ho adds. "They are entering a new phase in China. The economy isn't doing as well as before and retail overall is seeing headwinds. They have managed to grow quite well, but there is a new environment."

One factor that may work in C.Banner's favor is store ownership. The company doesn't own any of the retail sites from which it operates; they are all department store concessions, with rent tied proportional to sales. As such, capital expenditure on premises and long-term leases can't overburden C.Banner's cost base. It may come to be thankful for this arrangement in the event of a slowdown.

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• Topics
• Expansion
• Greater China
• Consumer
• Consumer
• China
• Growth capital
• CVC Capital Partners