Posted by: Frederik Balfour on September 20, 2009
Private equity powerhouse Carlyle has taken a minority stake in one of China’s largest infant formula makers, demonstrating strong faith in a sector that has been plagued by controversy over tainted milk powder and other dairy products during last year’s melamine scare. In a statement released on Sept. 20, Carlyle said it has acquired a 17.3% stake in Guangdong Yashili Group, through its investment fund Carlyle Asia Partners for an undisclosed sum.
Carlyle is not the first private equity fund to invest in China’s dairy sector since toxic milk products rocked the industry. In June,Kohlberg Kravis Roberts announced the final completion of a series of investments in Ma Anshan Modern Farming (Modern Dairy), a dairy farming company headquartered in China’s central province of Anhui which plans to use part of the money to build as many as 30 large scale farms in China.
One of Carlyle’s first tasks is to help Yashili recruit a Chief Quality Officer to ensure the safety of its products. Slipshod management of the supply chains of Chinese dairy companies last year whose tainted products were blamed for the deaths of six babies and kidney problems for hundreds of thousands of others. No doubt Yashili will benefit from the expertise of Carlyle partner Patrick Siewert who was poached from Coca-Cola where he was its chief operating officer of Asia until 2007.
The deal shows how blurry the distinction distinction between private equity and venture capital is in China. Complete takeovers, where private equity firms strip and restructure companies, are rare. Instead they typically provide capital and expertise in advance of a listing and have shepherded several companies to successful public offerings. For more on the domestic private equity scene, see my BusinessWeek magazine story “China’s Homegrown Private Equity”.
Speaking of Private Equity, I was the guest of Hony Capital founder John Zhao who hosted his company’s annual shareholder’s dinner in Hong Kong on Friday. It was a full-on 10-course Chinese banquet, replete with a magician, and a kung-fu demonstration. The crowning moment of the evening came when Hony Capital’s fund managers took to the stage accompanied by toddlers clutching giant fresh sunflowers in order to treat the crowd to a rendition of “We are the World.” Hony’s largest investor is the Legend Group, the parent company of Lenovo.