Shanghai private equity firm Lunar Capital has bought a majority stake of about 70% in Chinese snack food maker Guizhou Yonghong Food Co., committing up to $50 million to the company.
The deal represents one of a handful of Chinese buyouts in a market where private equity investors typically take minority shareholdings in portfolio companies.
Proceeds from the round will go toward research and development, and creating new brands that will appeal to niche customer segments, Derek Sulger, managing partner at the private equity firm said in a telephone interview. The Huishui-based company produces and distributes processed beef products. It was founded in 1984, and since then has been funded by the founders. Its beef products are sold under the brand name of Niutou, or Bullhead.
Lunar has a “clear three-year plan to bring [the company] to IPO size,” said Mr. Sulger, although there are no firm plans to list or trade-sale the company in the meantime.
“I think there's too much obsession around IPOs, but being a majority stakeholder means we're not so beholden to IPOs,” he said, explaining that as a controlling shareholder, the PE firm has more say in its long-term investment in a company, and exit strategy.
At the same time, Lunar is setting up an office in Guizhou province, which is situated in the south of China. Although more associated with tourism than with business, Guizhou and the general southwest area of China are presenting more attractive investment opportunities, Mr. Sulger said, as transport links with other parts of China improve. He declined to comment on valuations of companies around that area, but did say that “PEs have more bargaining power” there.
Recent Lunar investments include a 51% stake purchase in a joint venture to expand Italian luxury children's wear maker I Pinco Pallino's line of products to China and East Asia.
Lunar is investing from its $200 million third fund, which is nearly 70% invested. The firm is considering raising a fourth fund, which is likely to be around the same size, Mr. Sulger previously told LBO Wire.
Lunar, based in Shanghai, Chengdu and Hong Kong, also includes in its portfolio Yeehoo Apparel Ltd., a provider of high-end products for babies and toddlers, in which it has a majority stake, bought for about $100 million.