Jan 2010 Version 3.0 by KC YoonPROPRIETARY & CONFIDENTIAL
“China Private EquityConsumer-Driven Investment Themes”
Jan 2010
Version 3.0 by KC YoonPROPRIETARY & CONFIDENTIAL
China Private Equity– 2010 and Beyond ..Driven Investment Themes”
Jan 2010
Jan 2010 Version 3.0 by KC Yoon
Presentation Outline
China weathers crisis well and emerges with stronger economic foundations
Funds flow into domestic economic sectors
Key Consumer Trends and Potential Investment Themes
ONE: Domestic Brands Going Nation-wide
TWO: Internet Changing the Traditional
Business
ONE: Strength in domestic
consumption
TWO: Broad-based drive for Domestic PE
THREE:
fundamentals
Government taking active role to promote Private Equity investments
Other
Fund
Other Trends:
PIPE/RMB Fund
Version 3.0 by KC Yoon
China weathers crisis well and emerges with stronger economic foundations
Funds flow into domestic economic
Key Consumer Trends and Potential Investment Themes
TWO: Internet –Changing the Traditional
Business
THREE: Govtfocused on
fundamentals
FOUR:
competition
FOUR: Increased
market competition
Government taking active role to promote Private Equity investments
Maturing PE Market
Global Trends impacting
China
THREE: Changing Lifestyle of Middle-class
China
Jan 2010 Version 3.0 by KC Yoon
2009 Recap: Macro-Factors Driving China’s Future Consumer Economy
3
Growth of Chinese Middle-Class
Urbanization and Growth of Cities
Growth and Impact of the Internet
> 200 Cities with >1M residents
By 2015, >300M lower-middle class; 100M
luxury consumers
NOW >300M users; >RMB 120B online consumer
sales
Demand for Housingrelated products and
Demand for lifestyle & convenient services
Demand for better
Most widespread media
class consumers
Growth of B2C
Version 3.0 by KC Yoon
Factors Driving China’s Future Consumer Economy
Demand for Housing-related products and
services
Demand for lifestyle & convenient services
Demand for better healthcare
Over 110 high-consumer potential cities with 34% of
GDP
Most widespread media- access middle-
class consumers
Growth of B2C
IKEA continue to open 2 stores/year
Sunning plans a B2C site
Korea SKTelecom to invest RMB500M in qingxuan its
B2C site
Preident 7-11 to open3-7 stores in Shanghai plans
for 300 stores in 3yrs
China Chain Nepstar drugstar opem/acquire 700
stores 2008, plans 3000
Letao to open largest online toy store in China
Sunning plans 500sqm stores in the rural areas
targetting for 3000
Retailers continue to
expand network
Jan 2010 Version 3.0 by KC Yoon
2009 Recap: Key Consumer Trends with Investment Potential
+ 1
Growth of Chinese Middle-Class
Urbanization and Growth of Cities
Growth and Impact of the Internet
Govt Stimulus
3
Version 3.0 by KC Yoon
2009 Recap: Key Consumer Trends with Investment Potential
“City-Living” Consumer Services
“City-Living” Consumer Services
Affordable Luxury for the Young
Affluent
Affordable Luxury for the Young
Affluent“Mass Market” + “Good Enough”
Products
“Mass Market” + “Good Enough”
Products
Online Consumer Brands
Online Consumer Brands
“Knowledge” Services
“Knowledge” Services
“Health”+ “Well-being” Services“Health”+ “Well-being” Services
Large Market
Criteria for Strong Investment
Potential
High Growth
Able to Sustain Good
Margins
Defensible Niche
+“GREEN”
Global trend
+“GREEN”- Increasingly
important Global trend
Jan 2010 Version 3.0 by KC Yoon
Recap 2009: Investment Ideas
Right Strategy=WinningFund
Niche “Luxury” Brands
“Quick Fashion”-shows ready market for “affordable” luxury targetted at the mass market;
Retail Chains in Inner Cities
Retail chains in 2nd/3rd tier cities where growth potential is high and
also target for M&A by larger players
Emerging “luxury” brands in jewellery, cosmetics & ladies accessories (Unique hairpin retail combined with
strong service element)
Online Consumer/Ecommerce
Services
Education Services
Affordable “Luxury” + “Mass Market”
“Online ecommerce and other services will continue to grow as China becomes leading interent
nation”
Profitable and high growth segments in K12, English Education & Adult
Education (IT& Vocational Training)
Version 3.0 by KC Yoon
Recap 2009: Investment Ideas
-Success of ZARA shows ready market for “affordable” luxury targetted at the mass market;
Retail chains in 2nd/3rd tier cities where growth potential is high and
also target for M&A by larger players
Emerging “luxury” brands in jewellery, cosmetics & ladies accessories (eg. Unique hairpin retail combined with
strong service element)
“Online ecommerce and other services will continue to grow as China becomes leading interent
nation”
Profitable and high growth segments in K12, English Education & Adult
Education (IT& Vocational Training)
Jan 2010
Version 3.0 by KC Yoon
2010 :Same 3 Core Drivers but with New Focal Points
Growth of Chinese Middle-Class
Urbanization and Growth of Cities
Growth and Impact of the Internet
3
Broader Consumer base
Broader Consumer base
2nd/3rd Tier Cities New Growth
Areas
2nd/3rd Tier Cities New Growth
Areas
Mobile Drives New Needs
Mobile Drives New Needs
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Version 3.0 by KC Yoon
2010 :Same 3 Core Drivers but with New Focal Points
Jan 2010 Version 3.0 by KC Yoon
Investment Theme 1 : Domestic Brands Going National Consolidation & M&A & Development of Market Leaders
Right Strategy=WinningFund
Factors Supporting & Driving Consolidation
Factors Supporting & Driving Consolidation Sectors Impacted Sectors Impacted
EXPAND RETAIL REACH: Strong brands targeting to reach inner cities/grow from regional to national
network quickly
MULTI-BRAND/PRODUCT/SERVICE PORTFOLIO: Decreasing growth rates from existing
brands/products- need new revenue drivers
FRAGMENTED MARKET SEGMENTS: where there are no clear market leaders with significant market
share
THIN MARGIN MARKET SEGMENTS: profit margins are thin and economies of scale are critical
FOREIGN INTEREST IN DOMESTIC MARKETS: where foreign retailers bring edge in management know-how & technology or acquire domestic brand
into portfolio
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Version 3.0 by KC Yoon
Investment Theme 1 : Domestic Brands Going National -Consolidation & M&A & Development of Market Leaders
Market Activities Observed Market Activities Observed Sectors Impacted Sectors Impacted
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PE investment in mobile retailer FunTalkto acquire 6 regional distributors tobecome No.1 distributor/retailer of Mobilephones in China before listing onNASDAQ
Tsingtao acquisiitionof Ji’an brewery toconsolidateShandong market
Listed Chinese Education service playershave begun M&A (Chinacast acquisitionof 2 universities; Noah acquisition ofLittle Star children education) in order todevelop national footprint & diversifyservice lines
Jan 2010 Version 3.0 by KC Yoon
Investment Theme 1: Potential Investment Targets
Leading regional brands in cosmetics, personal care, Food &
drinks, fashion wear, etc
Leading Niche Domestic Brands with Strengths in
Growing 2nd /3rd Tier Markets
Regional Retailers/ Services with Strong
2nd /3rd Tier Distribution Network
• Dabao domestic personal carebrand acquired by P&G forUSD300M
• Regional fashion sportswear brand
Supermarkets in inner cities, restaurant & food service chains,
etc
•Fujian-based supermarketdominates 2nd/3rd
operates at highermargins
• KungFu Catering investedVCs
Version 3.0 by KC Yoon
Investment Theme 1: Potential Investment Targets
Regional Retailers/ Services with Strong Tier Distribution Network
Strong Brands with Nationwide Potential currently limited by distribution reach
Supermarkets in inner cities, restaurant & food service chains,
etc
supermarket retail chaintier cities and
higher-then industry
invested by leading
Larger well-established brands or global brands that has potential to
be national market leader
• Burberry – franchised operations inChina acquired by parent brandrecognizing strong market potential
• Ladies shoe brand retailer withstrong product but growth cpr toindustry peers limited by lack ofexpansion funds
Jan 2010 Version 3.0 by KC Yoon
Investment Theme 2 : Internet+ Technology Led Growth of New Niches from Traditional
Right Strategy=WinningFund
Factors Supporting & Driving GrowthFactors Supporting & Driving Growth Sectors Impacted Sectors Impacted
EXPAND BRAND REACH: extensive reach of internet + mobile into young consumers help to
rapidly build brand awareness
IMPACT OF SOCIAL INTERNET : peer opinions on brands, products, etc can influence consumer
behaviour
IMPROVING TRANSACTION INFRASTRUCTURE: efficient online payment systems + low cost
delivery drive transaction increase
SHIFT IN VALUE PROPOSITION : may often result in creation of a new business service/model
INTERNET & TV DRIVES NEW CONSUMER RETAIL CHANNEL : allows consumer access to new brands
& products+ brands nationwide reach
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Version 3.0 by KC Yoon
Investment Theme 2 : Internet+ Technology Led Growth of New Niches from Traditional
Market Activities Observed Market Activities Observed Sectors Impacted Sectors Impacted
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Explosive growth seen in online retailespecially clothing which by 2009 has capturedRMB2.4 billion or 9.7% of total clothing retail.VANCL founded only in 2007 & invested byleading VCs SAIF, IDG is the market leader with24% market share
Jan 2010 Version 3.0 by KC Yoon
Investment Theme 2: Potential Investment Targets
New Business Models resulting from internet + mobile + other
New retail channels with nationwide reach at low cost
• Hunan TV & Taobao launching TVHome shopping channel to targetlucrative & growing market
Sales of China’s TV Shopping will reach
RMB 20billion in 2008
Innovative new retail channels leveraging new media
(internet/mobile/digital TV)+ supporting infrastructure
• Mobilegrowth
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Version 3.0 by KC Yoon
Investment Theme 2: Potential Investment Targets
New Business Models resulting from internet + mobile + other value proposition shifts
•
•ALIMAMA is a micro-ad exchange & micro-retailsite targeted at consumers•ALIMAMA is a micro-ad exchange & micro-retailsite targeted at consumers
Mobile content download retail service as a result ofgrowth of mobile users and obstacle to access content
Propriety Customer Interface + Attractive
Retail Kiosks + Professional Service
Mobile ContentProviders
Mobile Mobile Operators/
Mobile Retailers
Jan 2010 Version 3.0 by KC Yoon
Investment Theme 3 : Changing Consumer Lifestyle of China’s Urban Middle
Right Strategy=WinningFund
Factors Supporting & Driving GrowthFactors Supporting & Driving Growth Sectors Impacted
ENJOY GREATER LEISURE & ENTERTAINMENT: affluence drives consumers towards spending
more leisure time
SPENDING ON CHILDREN NEEDS: greater affordability to spend on “single” child
FOCUS ON SELF-IMPROVEMENT & PERSONAL IMAGE: range of consumer-focused services from beauty-care, adult education, sports coaching, etc
DEMAND FOR STATUS with increased affluent also demand association with luxury brand/service
FOCUS ON HEALTHY LIFESTYLE: drives demand for healthcare products/services, sports services
Version 3.0 by KC Yoon
Investment Theme 3 : Changing Consumer Lifestyle of China’s Urban Middle-class
Market Activities Observed Sectors Impacted
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Pearson acquisition of China’s WSI-leading English learning school
Sequoia’s investment into China’sleading animation company as demandfor cartoon/animation content grows
Estimate 8m Chineseplay tennis withpenetration in urbanareas increasing.Currently lack of tennisfacilities hamperinggrowth of sports
Jan 2010 Version 3.0 by KC Yoon
Investment Theme 3 : Potential Investment Targets
Lifestyle & entertainment value chain, Niche-domestic luxury product/services
Niche Luxury-products lifestyle services
• Invest in content creation/animation companies
• Family-focused Chinesehistory-based themedretail/entertainment venues;
• Regional cuisine themedFood service
Healthy lifestyle + family-focused entertainment
content & services
• Home-grown fashiondesign houses
• Beauty/spa chain offeringtraditional Chinese cures &treatment
• Tennis Academy
Version 3.0 by KC Yoon
Investment Theme 3 : Potential Investment Targets
Healthcare products, medical service & pharma retail
creation
Chinesethemed
themed
Family/Home use healthcareSupplements & equipment
Medical service retail & hospital services
• Family-use homehealthcare check-up devices
• Leverage on Govt drive toimplement rural healthcarenetwork
Jan 2010 Version 3.0 by KC Yoon
Potential Investments Targets Across Core Themes
ONE: Domestic Brands Going Nation-wide
TWO: Internet –Changing the Traditional
Business
THREE: Changing Lifestyle of Middle-class
China
Lifestyle/ Entertainment Services Delivering Innovative Service
leveraging internet/mobile
technology
Version 3.0 by KC Yoon
Potential Investments Targets Across Core Themes
Lifestyle retail brands leveraging offline +online
presence to extend brand presence &
nationwide
Lifestyle/ Entertainment Services Delivering Innovative Service
internet/mobile
Fund InvestorCompany
PE Investments in China’s Retail & Consumer Sector in 2009
Value
Version 3.0 by KC Yoon
Sector CompanyInvested
Fund/Company
Consumer Food Products- Infant Milk
Powder
Yashili Group , Guangdong
Carlyle
Consumer Food Product- Dairy
Modern Dairy, Anhui KKR
Consumer Fashion Brands
- Ladies Shoes
Daphne International (HKSE)
TPG
Consumer FoodService-
Restaurant Chain
Golden Han Restuarants
Unknown
Consumer Fashion –Hair Accessory Retail
Guangzhou Meishan Legend Capital
Electronic & Appliance Retail
GOME(HKSE)
Bain Capital
Consumer Retail-Supermarket Retail
Wumart Inc(HKSE)
TPG, Legend & Hony
Remarks
PE Investments in China’s Retail & Consumer Sector in 2009
Value
Version 3.0 by KC Yoon
Fund/Company
Remarks
Carlyle Group • 17.3% for between USD100-200M• Intention to build industry leader in growth market
with strong 2nd/3rd tier city distribution
KKR • Minority investment• Intention to grow market leader with large scale
modern farming technology
TPG • USD80M for minority stake• Market leader in value lady shoe segment
Unknown • 30% for USD42M
Legend Capital • USD10M for minority stake• Fast growth & high margin fashion accessory retail
Bain Capital •18% stake for USD430M• Value-add to improve management efficiency in
China’s largest player
TPG, Legend & Hony Capital
• USD212 for 11%
Fund InvestorCompany
M&A Transactions in China’s Retail & Consumer Sector in 2009
Value
Version 3.0 by KC Yoon
Sector CompanyInvested
Fund/Company
Acquisition by domestic companies
Consumer Food Product-
Instant Noodles
Beijing Wugaodaochang
Food
COFCO
Consumer Retail-Sportswear Retail
Dalian DongzhijieSports
PouInternational
(HKSE)
Consumer F&B-Beer & Brewery
Ji’An Beer Group Tsingtao
Retail Supermarket Times, HK-based Supermarket chain
Wumartlargest
Education- Little New Star Education
Noah Education
Cross-border acquisitions
Consumer Food Service-
Food Service Chain
Little Lamb Hotpot(HKSE)
YUM Inc
Education-English
Wall Street English Pearson PLC
Consumer Fashion Brand-Apparel
Shanshan Group Itochu
Remarks
M&A Transactions in China’s Retail & Consumer Sector in 2009
Value
Version 3.0 by KC Yoon
Fund/Company
Remarks
COFCO • 100% for USD16M• New product line which will benefit from COFCO’s
large distribution
Pou ShengInternational
(HKSE)
• 70% for USD122M• Acquisition to access over 440 new distribution
POSs
Tsingtao Brewery • 100% acquisition for USD37M• Consolidation of Shandong beer market
Wumart, Beijing’s Supermart
• Majority stake for ~USD560M• Acquisition of management knowhow & operations
technology
Noah Education •100% acqusiition for USD113M• Gain revenues & new market reach
YUM Inc • 13.9% stake• Expansion of domestic-brand food service portfolio
in China
Pearson PLC •100% acquisition for USD145M• Pearson building domestic business presence
Itochu (China) • 28% for USD111M• Build domestic business
Jan 2009 Version 2.0 by KC Yoon
Other Notable Features of China PE Transactions in 2010
Deal Sources
Include investments into underlisted consumer/retail entities (
with objective to add expansion capital &
Exits through Trade Sale
As market leaders build market share & consolidate market, opportunities to exit
investments in smaller brands/companies by identifying potential strategic portfolio
owner in trade sale
Jan 2010 Version 3.0 by KC YoonVersion 2.0 by KC Yoon
Other Notable Features of China PE Transactions in 2010
Include investments into under-valued listed consumer/retail entities (eg. SGX)
with objective to add expansion capital & drive
As market leaders build market share & consolidate market, opportunities to exit
investments in smaller brands/companies by identifying potential strategic portfolio
owner in trade sale
Version 3.0 by KC Yoon