China’s appetite for branded goods and services is rapidly expanding beyond personal consumption. The past year has seen Hong Kong and mainland outbound investment grow in size, frequency and sophistication. Whether to secure manufacturing expertise, to seed future global expansion or simply to participate in the upside of the domestic consumption story, Asian private capital in particular has been calibrating its investment strategies.
With a depth of heritage luxury brands, moderate valuations and lower regulatory hurdles, Europe continues to lead with the largest acquisition activity. However, as the luxury sector continues to consolidate and desirable targets narrow, we will continue witnessing a shift toward American deal flow.
In review, here are some of 2013’s most significant Chinese cross-border transactions in the consumer and luxury sector, and the broader investment trends they illustrate:
1. Fosun International’s Significant Minority In Raffaele Caruso SpA
The Shanghai-based investment group has demonstrated a growing appetite for consumer-facing luxury plays over the past 18 months. Fosun has confidently pursued increasingly controlling stakes in its targets, from an earlier 10 percent placement in Greek jeweler Folli Follie up to a 33.3 percent investment in St. Johns Knits earlier in the year and most recently, a 35 percent stake in the Italian suit maker Caruso. The deal also references a wider luxury M&A trend of securing artisan suppliers; European incumbents such as LVMH, Kering, and Chanel have also been active in acquiring materials vendors and specialized manufacturers.
2. Dalian Wanda Takes Over Yachtmaker Sunseeker
Wanda’s buyout of the largest UK luxury yachtmaker reflects an increasingly common strategy in controlling European luxury category leaders without affecting quality of make or design aesthetics. Sunseeker International, the purveyor of vessels for the James Bond franchise, has assured its client base that the company will remain quintessentially British, without disruption to its current operational and manufacturing base in Poole, Dorset County. In a transaction valued in excess of £300 million, Wanda can claim pride of ownership of an iconic global brand, with the additional upside of high growth prospects from the Asia market.
3. Smithfield Foods Buyout by Shuanghui International
Global pork supply makes a unique appearance on this list due to the political significance and sheer size of the transaction. Shuanghui, a Hong Kong based food conglomerate, initiated a $4.7 billion bid for Smithfield in the late spring, before weathering a storm of public scrutiny over U.S. national food security.
The buyout bid cleared regulatory and shareholder approval in September and as such, sets a valuable precedent for future cross-border deals in “sensitive” sectors. At $7.1 billion after debt assumption, it is the largest acquisition of a U.S. company by a Chinese firm to date.
4. Tencent Holdings Leading Series D for Fab.com
With a $150 million placement, the largest Chinese listed internet company nearly doubled the design-focused e-retailer’s total funding and boosted its valuation north of $1 billion. This deal is emblematic of growing Chinese interest in the U.S. online sector, both to expand social messaging platforms as well as in advance of e-commerce plays. Tencent’s popular WeChat application has exceeded 600 million active monthly users and recently introduced mobile payments. With Fab.com quite shy of profitability and sustaining a high burn rate, the investment value lies in long-term foresight into global e-commerce trends.
5. Greenland Holding Assuming Majority Stake in Atlantic Yards
A year after breaking ground on the $5 billion Atlantic Yards development in Brooklyn, New York, developer Forest City Ratner Cos. has finally secured the financing to proceed with the residential components of the master plan. Shanghai-based Greenland Holdings Group is acquiring 70 percent of the project and is expected share developments costs. At completion, Atlantic Yards will feature the world’s largest modular building, with 16 apartment towers of prefabricated units. The Greenland deals underscore a year of Chinese real estate investments in the United States, in particular to help expedite Greenfield projects of mixed-use lifestyle developments to market.
Lina Lee is a strategist and advisor to the fashion & consumer retail sector, collaborating intuitively with brand owners and entrepreneurs to solidify brand positioning and create commercially viable financial models. As a buy-side advisor, she also works with individual and institutional investors to evaluate small to mid-cap branded opportunities in the U.S. and Europe. With Harbin roots and a bi-cultural upbringing, Lina keenly tracks the evolution of the Chinese consumer and the long-term investment trends in the market. Connect with her via LinkedIn, Edited China, or Twitter.