
ARCH exits Shanghai supermarket
ARC Capital Holdings Ltd. (ARCH) has sold its 100% stake in Shanghai Jiadeli Supermarket, one of the largest supermarket chain operators in Shanghai, for RMB1.1 billion ($164.8 million).
The buyer is industry peer Shanghai Haihang Jiale Enterprise Management Co., a holding company owned by listed conglomerates Po Commercial Group and Xi’an Minsheng. It is understood that CITIC Trust helped to finance the deal, providing a senior loan of RMB600 million ($90 million) with terms of two years so Shanghai Haihang Jiale. Po Commercial funded the remaining c. $75 million.
The supermarket is ARCH’s first control investment to come full-cycle, from acquisition to sale, and a benchmark for future success. According to the firm’s official website, the initial investment of around $89.1 million versus recent sale price translates into a 1.9x cash multiple and an IRR of 25.7%. ARCH, which is managed by Pacific Alliance Equity Partners, the private equity arm of Pacific Alliance Group, originally took full control of the local chain through several acquisitions made between January 2007 and August 2008.
ARCH further noted that the exit price is approximately $5.7 million more than the asset’s August 31 carrying value of $159.1 million. Currently, local retail businesses are one of the most attractive industries for PE investment.
Allan Liu, Managing Partner of Pacific Alliance Equity Partners, explained that China’s domestic consumption growth versus that of the rest of the world is especially compelling. “For the next 20 years or so, China’s share of the world’s private consumption is expected to increase from 5% to around 30%, while the US will decrease to around 26%. This dynamic speed and GDP growth are what we are looking at,” he told AVCJ.
He added that ARCH’s targets are consumer categories that are characterized with high growth rate (20% or higher annual growth), low penetration rate which ensures sustainable high growth, as well as high fragmentation which provides value creation opportunities through consolidation.
Founded in 1998 Shanghai, Jiadeli operates 157 outlets, of which 136 are located in Shanghai and 21 have been established in other provinces. Each outlet has About 15,0000 square meters of space; the standard size for a traditional, mid-size supermarket. The group is currently Shanghai’s third-largest supermarket chain.
The firm’s operations team dramatically improved operating efficiency and profitability, resulting in EBITDA growth of 65% and net profit growth of 171% during 2009.
Liu explained, “We focused geographically in the Shanghai market for developing the company’s business, including closing unprofitable stores quickly and resolutely; opening new, reformatted stores in Shanghai; as well as refining products categories – introducing more fresh food products to effectively compete with other hypermarkets. It was also about how effectively we made fundamental changes to ERP and logistics systems.”
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