EQT bakery investment proves out

"When PricewaterhouseCoopers (PwC) was approached to help raise foreign capital for the business it was originally intended to be a 20% growth equity deal," explains Martin Mok, a partner with EQT in Hong Kong. "Most people followed the rules and went for a minority stake, but we wanted control, so we pitched for 65% and we got it, with the founders retaining 35%."

The size of the deal was not disclosed but the investment - made via EQT's second Greater China fund - fell within the GP's standard enterprise value range of $100-250 million.

At the time Qinyuan had been business for 21 years and was displaying healthy growth. With 223 outlets, it was already a leading retail bakery chain in Southwest China - with a 40% market share in Chongqing and Guiyang - selling pastries, cakes, cookies, beverages, moon cakes and rice dumplings. EQT claims to have leveraged its global domain expertise to take the company to the next level.

"We previously made an investment in Vaasan & Vaasan, the biggest industrial baking company in Northern Europe," says Mok. "Qinyuan is a retail business, so it was a bit different, but it was still familiar territory, and we had already completed a number of retail deals."

The PE firm drew upon its industry advisor network, bringing in Yiu Keung Yeung, formerly CEO of KFC Hong Kong and COO of hotpot chain Little Sheep as chairman. It then tapped its European connections.

"We visited Matti Lappalainen [the CEO of Vaasan & Vaasan] with the management three times during the ownership period," says Mok. "We didn't just visit Vaasan & Vaasan's plants but toured other the companies that Matti could put us in touch with."

The visits gave Qinyuan insights into state-of-the art bake-off technology, which involves freezing prepared dough products to be shipped and baked-off in store. By employing this method, Qinyuan was able to save on labor costs and improve supply chain efficiency.

The company expanded to around 460 outlets; of which 200 provide onsite baking facilities combined with a café setting. Meanwhile, revenues have grown from $34 million in 2010 to an expected $105 million for the current financial year; EBITDA has increased nearly threefold to $17 million.

EQT eventually hired UBS to help find a buyer by the end of 2013 and began negotiations with number of strategic suitors before settling on Swire Foods, a unit of Hong Kong-listed Swire Pacific. Mok adds that the improvements made in terms of governance and efficiency made Qinyuan an ideal target for the global conglomerate.

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• Topics
• Exits
• Consumer
• Greater China
• EQT Partners
• Trade sale
• Exit
• Consumer
• China