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Feb 9, 2012
A financial consortium backed by French luxury goods giant LVMH has acquired a 10 per cent stake in mainland fashion maker Ochirly, a sign that global retailers are keen to tap the huge potential of mainland middle-class consumers, people close to the deal said yesterday.
The deal is worth US$200 million, valuing the whole of family-owned Ochirly at US$2 billion, and marks the first time L Capital, the private equity arm of LVMH, has taken a direct stake in a mainland company.
The people said L Capital, which is mainly financed by LVMH, has teamed up with the private equity arm of state-owned financial conglomerate China Citic Group to take the stake in Ochirly, which is a mid-priced brand that caters mostly to trendy female office workers.
Beijing-based Citic Private Equity Funds agreed to hold only a small stake, leaving most of the 10 per cent stake in Ochirly to be owned by L Capital, the people said.
Ochirly, established in late 1990s, currently operates about 200 retail outlets across the mainland, including in top-tier cities such as Beijing, Shanghai and Guangzhou, and is one of the nation's biggest fashion companies in terms of sales. The top management of the company has been considering making an initial public offering of shares in Hong Kong or New York in the coming years, and is looking to the tie-up with LVMH to boost the company's brand recognition worldwide.
"The deal is not just about money," said one person familiar with the transaction. LVMH and L Capital consider this "a good opportunity to tap the strong fashion business growth of Chinese consumers, but it's more important for Ochirly to win recognition among global investors" for a future IPO. L Capital could not be reached for comment.
L Capital is no stranger to acquisitions in Asia. In August 2010, L Capital bought about US$30 million worth of warrants and convertible bonds in Hong Kong-listed Emperor Watch and Jewellery, controlled by the city's entertainment industry tycoon Albert Yeung Sau-Shing. Emperor's foreign investors also included hedge fund D.E. Shaw.
"The Emperor deal in 2010 was more like a test for the fund [L Capital] to make investments in China. I think now it's more aggressive and wants to pour more money into the local market," said another person, adding that the rise in asset prices has been a top concern of global investors trying to consummate deals on the mainland in recent years.
In the West, fashion and luxury businesses were badly hit in the financial crisis in 2008. Sales of luxury products have been slowly recovering in the past two years.
Currently, China is the world's second market for luxury goods, behind Japan. LVMH's best-selling products on the mainland include Louis Vuitton handbags and Marc Jacobs brand clothes.
In 2001, LVMH and its major shareholder Groupe Arnault jointly set up L Capital, whose investment focus is to seek deals in consumer-driven sectors such as personal health care, luxury and retail goods. In addition to the Emperor deal in 2010, L Capital also bought minority stakes in Genesis Luxury Fashion in India, and in Singapore it has investments in luxury timepiece retailer Sincere Watch and Asian shoe label Charles & Keith.
Nick Debnam, a partner at KPMG China, said: "China has become the most important market for luxury and the global luxury players are clearly very interested to invest in China. There are a variety of options for investment in China, both in terms of developing existing luxury brands and building new brands.
"The multinational luxury groups may provide emerging Chinese designers with a tremendous platform to expand into the global marketplace. This would give domestic designers direct access to the experience and connections which a multinational fashion group would have built up over years of doing business on an international level."
george.chen@scmp.com Copyright (c) 2012. South China Morning Post Publishers Ltd. All rights reserved.