Red Bull, Hony In China Food Deals
Two new deals in the food and beverage space are casting a spotlight on China’s growing hunger and thirst for foreign products, and also its desire to import better practices to combat a nonstop stream of domestic food safety scandals. The bigger of the deals will see Hony Capital, one of China’s largest and oldest private equity firms, pay $1.6 billion for British fast-food chain PizzaExpress, which is in the process of expanding in China. The other deal will see the owner of the Red Bull brand of energy drinks for China buy a stake in the parent of Vita Coco, and bring the US company’s flagship coconut flavored drinks to China.
Encouraged by Beijing, cross-border China food deals have exploded in the last 3 years, spearheaded by a handful of major firms aiming to expand globally and bring foreign expertise and products to their China operations. Shanghai-based Bright Food was one of the earliest to embark on such M&A, most recently agreeing to pay $1.4 billion for 56 percent of leading Israeli Tnuva. Meat processor WH Group, formerly known as Shuanghui, also made headlines last year when it paid $4.7 billion for leading US pork producer Smithfield, in the biggest ever purchase of a US company by a Chinese firm.
Now Hony Capital, the investment arm of Legend Group, looks set to joint the international F&B club with its PizzaExpress purchase. (English article) Hony will buy the chain from PizzaExpress’ parent, Gondola Group, which itself was bought by private equity firm Cinven for $1.8 billion in 2007. The companies said the sale is the largest in Europe’s restaurant sector in the last 5 years.
PizzaExpress is a fairly well known name, with some 500 stores worldwide, the big majority of those in Britain. The company has a small China presence, including 12 stores in Hong Kong, 9 in Shanghai and its recently opened first outlet in Beijing. Within Asia the company also has stores in India and Indonesia.
The chain’s May announcement of its first Beijing store underscores that PizzaExpress is expanding very carefully, with managers emphasizing they will move slowly in choosing their second Beijing location. Perhaps the pace could accelerate a bit with the arrival of Hony, whose roots are in Beijing and which could nudge the chain to move more aggressively in the lucrative Asian market.
From Hony, let’s look quickly at China Red Bull, whose parent, Reignwood Group, will purchase 25 percent of All Market Inc, as part of a deal to bring the US company’s Vita Coco coconut-flavored drinks to China. (company announcement) No payment terms were given, though the companies said that Vita Coco has an enterprise value of $665 million based on the purchase price.
This tie-up looks full of potential for several reasons. Foreign beverage makers have found huge success in China, with global giants Coca Cola (NYSE: KO) and PepsiCo (NYSE: PEP) carving out big shares of the market. What’s more, coconut drinks are also quite popular in China, where consumers often prefer fruit-flavored products to colas preferred by western consumers.
But perhaps most intriguing is the big success that Red Bull has already found in China. I’m not a big fan of the drink, which contains high levels of caffeine; but it definitely enjoys a similar image here as it does in the west, as a product for young, energetic people. That marketing savvy that has helped Red Bull succeed in China, combined with the company’s distribution channels and the Chinese fondness for coconut flavor, could give Vita Coco a strong shot at carving out a lucrative niche in the China beverage market.
Bottom line: PizzaExpress could ramp up its Asia expansion following its purchase by Hony Capital, while Red Bull’s addition of a coconut drink to its China lineup looks well positioned to succeed.
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