New phase for Yeehoo with Lunar Capital

Lunar Capital Management Ltd and its affiliates acquired a controlling stake in China Yeehoo Group Ltd, a Guangzhou-based baby products company, the company said on Thursday.

Lunar invested about $100 million in the deal. Part of the transaction was aimed at purchasing a controlling majority stake, while the other part was for the company to use as expansion capital.

Yeehoo's existing management team will remain substantial minority shareholders, according to the announcement.

Derek Sulger, a partner at Lunar who will join Yeehoo's board of directors, said: "Given the rising disposable income of parents and grandparents, we believe that branded baby products represent an attractive way to address China's growing domestic consumption.

"We believe that Yeehoo has a highly differentiated franchise with strong potential for growth, and we look forward to working with the company to help drive future expansion."

In recent years, China has seen rising demand for baby- and child-related products. According to Frost & Sullivan Inc, a US market consultancy, spending on newborns in the country rose from $9 billion in 2005 to nearly $25 billion in 2009 and is expected to hit $49 billion by 2013.

Annual household spending on children's products in cities increased from $288 in 2005 to $663 in 2009, and is expected to reach $1,256 by the end of next year, it said.

"We are very excited about our new partnership with Lunar Capital, whose extensive resources will help to strengthen and grow our brand equity, and further our commitment to quality and reputation with Chinese mothers and their babies," said Alice Guo, founder and CEO of Yeehoo.

The company has a network of more than 650 stores in 138 Chinese cities and offers some 4,000 products, including apparel, bedding, bath care, furniture and maternal products.

Hundreds of other domestic children's brands such as Les Enphants, Paclantic and Balabala already have a share of the market. International fashion giants Zara (a division of Inditex SA), H & M Hennes & Mauritz AB and Gap Inc also have opened stores in many cities.

Dozens of other US and European retailers plan to move in as well.

According to Frost & Sullivan, the infant population in China will continue to rise steadily from 80.4 million in 2010 to 86.9 million in 2015.

The urban baby population will increase faster than the national average, with a 2.1 percent annualized compound growth rate, going from 38.8 million to 43 million in the same period.