NEW YORK -- Highlighting investor interest in Chinese baby care products, U.S. private equity firm Warburg Pincus has reached a deal to buy a majority stake in Beijing-based retailer Leyou.
Leyou, best known in China for in-house children's clothing brand greatfamily, has since 1999 built up a network of around 580 self-operated and franchise shops across 150 cities as well as a heavily trafficked online store. The Warburg buyout is valued at between $200 million and $400 million, according to sources familiar with the negotiations.
Investor interest in Chinese baby products has perked up since Beijing changed its long-standing "one child" population control policy in 2016 to permit all families to have a second child. As this change has yet to have much impact on China's rapidly aging demographic profile, speculation is rising that Beijing will further relax its controls as authorities step up official encouragement for larger families.
"With the relaxation of the one-child policy, there is potential for an uptick in mother-and-baby retail sales," said Anthony Siu, managing director at BDA Partners, the investment bank handling the Warburg-Leyou deal. "For retailers that have well-established brands, we expect to see more majority buyout transactions. The market is maturing."
In 2012, Warburg Pincus invested $55 million in China Kidswant Investment Holdings, a Nanjing-based retailer of baby and children's goods which now has 227 stores. The private equity group has also bought stakes in two pediatric-focused Chinese hospital groups, Beijing Amcare Women's & Children's Hospital and UIB International Holdings.
Warburg is expected to announce the Leyou deal in the next few days, with closing pending regulatory approval. The Chinese Ministry of Commerce has already published comments on the planned investment on its website. Its report noted that there is little business overlap between Warburg and Leyou, suggesting Chinese regulators are unlikely to raise competition objections. Hu Chao, the businesswoman who founded Leyou, commented to a Chinese baby products industry blog that she intends to remain at the helm of the company.
Goldman Sachs and WI Harper, a China-focused venture capital firm, invested in Leyou's first fundraising in 2001. Subsequent fundraising rounds brought in Deutsche Bank, venture capital firm AsiaVest Partners, and U.S. private equity firm Carlyle Group. Carlyle, through its Carlyle Asia Growth Partners IV fund, has remained an investor in Leyou.
Warburg Pincus closed fundraising on a $2 billion China investment fund two years ago after six months of discussions with investors. Known investors in the fund include the New Jersey Division of Investment and the Washington State Investment Board.
Other Warburg investments in China include: home goods retailer Red Star Macalline, online used car sales site Uxin, China Huarong Asset Management, vehicle rental company CAR Inc., chauffeur service UCAR, electric car manufacturer Nio and delivery service ZTO Express. The company was also an investor in bike rental service Beijing Mobike Technology, which was acquired in April by online platform Meituan Dianping.
Additional reporting by Sunny Tse in Hong Kong