A helpful hand for Little Sheep
Little Sheep is headquartered in Inner Mongolia and specializes in hot pot, a popular Chinese food style in which diners dip raw meat and vegetables into shared cauldrons of bubbling broth. Little Sheep was listed on the SEHK in June 2008, and had owned or franchised 459 restaurants across China – as well as 22 outlets overseas – by the end of 2010, achieving a net profit of 188 million yuan.
"On China's market, competition among restaurant chain operators became increasingly fierce, accelerated by the emergence of newcomers and the expansion of giants. Plus, soaring prices and food safety have put stress on restaurant operators, including Little Sheep," said the unnamed analyst. "Yum!'s investment may be a good thing for Little Sheep, especially since Yum! has rich experience in food service, which may be helpful for Little Sheep's further development."
Foreign capital eyes Chinese stomachs
According to a news roundup, foreign businesses are showing a keen interest in Chinese appetites. Despite Coca-Cola's failure to acquire Chinese juice producer Huiyuan in 2009, foreign investors continue to keep an eye on China's food and beverage industry.
ApaxPartners, one of the largest European private equity firms, successfully purchased Golden Jaguar, a high-end buffet-style restaurant chain, in late July. "We are excited to kick off this new chapter in the history of Golden Jaguar. We look forward to partnering with Golden Jaguar's existing management team to accelerate the growth of the business," said Alex Pellegrini, Partner in the Retail and Consumer Group at Apax.
In addition, Nestlé S.A. signed a cooperation deal with the Xu family, the founders of Hsu Fu Chi International Ltd, on July 11. Both sides agreed that Nestlé would purchase 60 percent of Hsu Fu Chi, China's largest domestic confectionery company, while the Xu family would retain 40 percent. Xu Chen, the current CEO and President, would continue to lead the joint venture in the future. The application has been submitted to the Ministry of Commerce and is awaiting approval.
Sources say that new rules are being drafted by the China Security Regulation Commission which will probably set a higher annual profit standard for the listing of food and beverage companies, raising the threshold from 30 million yuan to 50 million. This would weed out a large number of Chinese enterprises planning to get listed. Xiang'e Qing, the first private restaurant company in the food industry, is listed on the A share market of China, yet only earned a net profit of 58 million yuan in 2010, for example.
For China's confectionery and food companies, it is hard to get listed on the stock market in China based on the new rules. "Yum!'s acquisition of Little Sheep could be an inspiration for these enterprises. Mergers and acquisitions may become a trend in the food and confectionary industry as a new way to survive and thrive in the future," said Li Zhiqi, an expert specializing in brand strategy.
