CBME China 2024

17-19 July 2024 | National Exhibition and Convention Center (NECC), Shanghai, China

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PE Firms to Go ‘Ga-Ga’ For Kid-Focused Deals in China



PE Firms to Go ‘Ga-Ga’ For Kid-Focused Deals in China

 

Source: The Wall Street Journal

 

 

Private equity firms in China invested in baby or child-related companies received their Christmas present early this year, after the government announced it would ease its notorious one-child policy.

 

The change in policy is a bid to boost the country’s ailing birth rate, and help balance out China’s aging population.

 

Share prices of Chinese businesses, from education to children’s clothing, popped after the announcement was made earlier this month, and now at least one industry observer expects their private counterparts to benefit from a growth in sales and revenue.

 

Only a handful of private equity firms have been actively snapping up deals in the children’s sector this year, but that’s likely to change as analysts foresee a possible baby boom in the near future. Baring Private Equity Asia, Lunar Capital, RRJ Capital and Standard Chartered Private Equity this year all completed deals.

 

“Valuations for good businesses should rise on the simple fact that everyone’s future revenue forecasts just rose,” said Derek Sulger, a founder of Shanghai-based Lunar.

 

Most investors have so far plowed capital into children’s wear businesses, including RRJ’s investment in Hong Kong-based children’s wear retailer Kingkow in February, and Lunar’s procurement of a 51% stake in a joint venture that would expand Italian luxury children’s wear maker I Pinco Pallino’s line of products into China and East Asia.

 

Other areas of interest for Lunar include children’s beverages and snack foods, said Mr. Sulger. He said his firm has put aside thoughts of investing into baby milk formula businesses for now, given health and safety issues. Scandals of tainted baby formula from both China’s homegrown companies, as well as foreign brands used in the mainland have brought the industry under close scrutiny.

 

Leaders in Beijing said earlier this month it would allow married couples to have two children if at least one spouse is an only child. The timeframe to implement this new change will take time, but as long-term investors it’s something that’s unlikely to faze private equity investors.