MSPEA in convenience store carve-out

In this context, a private equity firm acquiring Hi-24 is not surprising. Morgan Stanley Private Equity Asia (MSPEA) has agreed to buy a majority stake in the Cayman Islands subsidiary that operates the convenience store business.

"What's interesting is that it is a control transaction for us," says Homer Sun, chief investment officer at MSPEA. "We think that the leading convenience store chain in Beijing has a lot of strategic value. It has an exceptional management team that we will continue to incentivize to drive growth."

MSPEA will take ownership of a 72% interest in the Cayman vehicle for an undisclosed sum. As part of the transaction, the PE unit will also settle a shareholders' loan worth RMB58.1 million ($9.3 million). The selling party is KPB Marketing, a subsidiary of CFSH, although the majority of the shares come from Siu Lam Cheung, the parent company's chairman.

The first Hi-24 store opened in Beijing in 2002 and 100 more followed over the next three years. At the same time, CFSH - then known as KPI - was developing its hypermarket interests in mainland China. Supported by investments from PAG-controlled ARC Capital Holdings and CITIC Capital in 2007, the company took a majority position in Hualian GMS Shopping Center, its Shanghai-based partner since the late 1990s. The asset was exited in 2010.

By this point the Hi-24 network had expanded to 150 outlets, claiming a 30% share of the Beijing convenience store market. The plan was to double that footprint within two years and by year-end 2011 there were about 190 stores. The business was worth approximately HK$17.8 million ($2.3 million) as of June 30, with a turnover of HK$264 million and net profit of HK$8.5 million in 2011.

Regarding the nature of the transaction, Sun notes that a parent divesting a non-core asset has to consider treating management fairly - by securing a reliable new owner - as well as maximizing the sale price. MSPEA has known the management team for several years.

The near-term plan is to consolidate Hi-24's market leading position in Beijing in the face of competition from the likes of 7-Eleven and Quik, both of which operate on a national scale.

"We think there is a steady opportunity in terms of adding stores and expanding the network by 50-100% in the next few years," Sun says. "Compared to Shanghai, for example, Beijing is an underpenetrated convenience store market, so we think there is a lot of room to grow the business."

• Tweet  
• Facebook  
• LinkedIn  
• Google plus  
• Save this article  
• Send to  

• Topics
• Consumer
• Greater China
• Buyouts
• Consumer
• Morgan Stanley Private Equity Asia
• buyout
• China