Legend heightened M&A activity in liquor industry

Industry insiders see an increase in merger and acquisition (M&A) activities in the liquor sector in the coming years after Legend Holdings Ltd, the parent of personal computer giant Lenovo Group Ltd, completed its third acquisition in the liquor business since June 2011.

Legend's liquor subsidiary bought Shandong-based Qufu Confucius Family Liquor Co at a price tag of 400 million yuan ($63.2 million) Sunday, the subsidiary told the Global Times in an e-mail statement Monday.

"The deal symbolizes the arrival of a period of heightened M&A activities, which will be a dominant trend in the coming decade," Shu Guohua, a liquor marketing expert, told the Global Times.

The liquor sector in China is set to see a boom in the next three years, with the current yearly production of around 10 million kiloliters expected to double by 2015, said Wu Jianhua, secretary-general of the Shanghai Drinks Association.

The sector, featuring a large number of breweries, is expected to see faster consolidation with small breweries being acquired or merged, Wu told the Global Times Monday.

Legend Holdings set up the liquor subsidiary in 2011, which completed two deals in the same year. It became the controlling shareholder of Wuling liquor in Hunan Province and bought Bancheng liquor in Hebei Province.

These deals "reflect a flow of capital into the liquor sector. In the backdrop of a slowing economy and low investment returns in many other sectors, investors have been targeting the liquor sector with relatively high profits," Wu noted.

Confucius Family Liquor was a well-known liquor brand in China in early 1990s with its sales once hitting 1 billion yuan, but sales shrank to some 200 million yuan after a Shandong-based liquor scandal in 1997 that affected the liquor firms within the province.

The company attracted capital investment several times in the past years but was not successful in improving its sales and brand recognition, Yang Qingshan, a liquor expert with the China Brand Strategy Association, told the Global Times. "If the new deal still focuses on making quick money instead of improving its operation, the future is not optimistic for the liquor brand."