CDH, Belle to make Baroque big in China

External factors also play a role - a PE firm may be under pressure to return capital to investors or an investment team might be suffering a dry period in a particular geography and keen to get a deal done. 

In the case of apparel Baroque Japan, which was majority-owned by CLSA Capital Partners, it came down to the buyers' expectations for growing the business outside of its domestic market. Convinced that they could expand the apparel company in China faster and on a larger scale than the company was planning, CDH Investments and its strategic partner Belle International, China's leading women's shoe retailer, were comfortable with the price.

"The plan was to open 30 stores in China over a three-year period and this growth was factored into the selling price. But CDH brought in Belle to help with the due diligence and they said they could open 300 stores in three years," a source familiar with the transaction tells AVCJ. "In this context, the valuation became more attractive."

CLSA acquired a 54.94% stake in Baroque six years ago via its 2006 vintage CLSA Sunrise Capital Partners fund and backed its expansion to nearly 350 stores. With the vehicle winding down an exit in some form or other was looming.

Hong Kong-listed Belle has agreed to buy 31.96% of Baroque for $93.96 million. CDH, which is also an investor in the shoe retailer, is picking up the remainder. Based on the valuation of Belle's portion, the private equity firm is paying $67.62 million. Following the acquisition, Belle will support Baroque in China through a series of joint ventures, taking its overall investment to no more than HK$924 million ($119 million).

"It's a growth story, but it's not just about betting on GDP growth," the source adds. "Baroque is going into malls in China and Belle can say we want this space or we will pull out our seven other stores. Japanese management couldn't do this on its own."

The Belle growth story has been remarkable, driven by sportswear as well as shoes. In 2006, the year before it went public, the company generated RMB6.2 billion ($1.01 billion) in revenue and RMB976.6 million in net profit from 5,300 self-managed retail outlets. As of 2012, the network had grown to more than 17,500 stores; revenue was RMB32.9 billion and net profit came to RMB4.3 billion.

Now, though, Belle expects a prolonged phase of structural rebalancing and moderate growth, and it has identified e-commerce, mass-market brands and multi-brand stores as the way forward. Baroque's stable of brands - which offer exposure to the fashion apparel space and a following among young female consumers - are seen as a good strategic fit.

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• Topics
• Greater China
• North Asia
• Consumer
• CDH Investments Management
• China
• Consumer
• Growth capital
• Japan
• CLSA Capital Partners