Deal Worth US$200 Million, Valuing Ochirly At US$2 Billion#
The China market has obviously been pretty good to the luxury consortium LVMH Moët Hennessy • Louis Vuitton S.A., which posted forecast-beating 22 percent global growth in 2011 due heavily to Chinese spending both at home and abroad. Currently, dozens of LVMH-owned luxury brands, including Hublot, Chaumet and Loewe, are expanding into second- and third-tier cities in inland China, shrugging off concerns about a potential slowdown in Chinese spending this year. Placing a bet on greater consumption among China's growing middle class, this week LVMH announced plans to take a 10 percent stake in the domestic Chinese fashion retailer Ochirly in a deal said to be worth US$200 million.
According to the South China Morning Post, LVMH's investment in Ochirly would value the family-owned company at US$2 billion, and would mark the first time LVMH's private equity arm, L Capital, has taken a direct stake in a mainland Chinese company. From the article:
The people said L Capital, which is mainly financed by LVMH, has teamed up with the private equity arm of state-owned financial conglomerate China Citic Group to take the stake in Ochirly, which is a mid-priced brand that caters mostly to trendy female office workers.
Beijing-based Citic Private Equity Funds agreed to hold only a small stake, leaving most of the 10 per cent stake in Ochirly to be owned by L Capital, the people said.
Ochirly, established in late 1990s, currently operates about 200 retail outlets across the mainland, including in top-tier cities such as Beijing, Shanghai and Guangzhou, and is one of the nation's biggest fashion companies in terms of sales. The top management of the company has been considering making an initial public offering of shares in Hong Kong or New York in the coming years, and is looking to the tie-up with LVMH to boost the company's brand recognition worldwide.
"The deal is not just about money," said one person familiar with the transaction. LVMH and L Capital consider this "a good opportunity to tap the strong fashion business growth of Chinese consumers, but it's more important for Ochirly to win recognition among global investors" for a future IPO. L Capital could not be reached for comment.
According to Nick Debnam, a partner at KPMG China, "China has become the most important market for luxury and the global luxury players are clearly very interested to invest in China. There are a variety of options for investment in China, both in terms of developing existing luxury brands and building new brands." Though this deal is the first investment by L Capital in a mainland Chinese company, it's not the first for LVMH, which purchased the Chinese baijiu distillery Wenjun back in 2009.
