Deal focus: Partners Group targets top-tier baby products

The rise of e-commerce is redrawing the competitive map for the maternity, baby and child (MBC) market in China, with a host of online start-ups getting funded.

AVCJ Research has records of at least four companies offering a combination of baby products and social networking raising rounds of at least $100 million over the course of the year. They include Beibei, BabyTree and Mia.com, which between them received more than $500 million.

While some of these are aspiring online-to-offline (O2O) players, Aiyingshi is going in the opposite direction, adding an online presence to a bricks-and-mortar network of 159 stores across Shanghai, Zhejiang, Fujian and Jiangsu. Partners Group recently bought a minority stake in the business - for a sum in the region of $30-50 million - facilitating an exit for China New Enterprise Investment (CNEI) and two other shareholders in the process. It is the firm's first direct investment in China.

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%.

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 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.

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• Topics
• Expansion
• Greater China
• Consumer
• Exits
• Partners Group
• China
• Growth capital
• Exit
• Consumer
• CNEI